There can be no doubt that the nascent marijuana industry has had an electrifying effect on the country: many have pulled up stakes to live cannabis-friendly states, dropped their cash into start-up pot ventures, and pushed through the minutiae of restrictive state laws, hoping that – once though the legal morass – they might be beneficiaries of the economic boon heralded by Colorado and Washington.
But even with almost half the United States in some phase of marijuana legalization – and more pending for ballot initiatives in 2016 – intractable federal laws remain a legal quagmire for banks and other financial institutions desiring to partner with Big Pot.
The US has a dual banking system, but as it stands, doing business with state-licensed companies who receive their revenue from marijuana means financial institutions are in violation of federal law.
The list of illegal activities for financial institutions includes: Granting a loan to a cannabis enterprise and then putting the money in their checking account; Processing customer credit card sales for said business; Accepting money from marijuana sales.
While these transactions might not sound particularly egregious, their penalties are: a minimum of 5-10 years in prison and a maximum of life, as well as fines in the millions and the reneging of a bank’s deposit insurance.
Unfortunately a bank’s ‘risk assessment’ of a growing marijuana business lies not in its viability or merit, but in the overarching threat of being brought down by federal law.
Understandable that many banking institutions, whipsawed by both opportunity and punishment, have been leery of wading into the world of cannabis.
In the interest of shedding some light on such issues and facilitating a conversation between ambitious marijuana start-ups and financial institutions, the Marijuana Business Association (MJBA) held a day-long symposium, “Dollars and Sense” on Saturday, November 22nd in Bellevue. The event brought together industry professionals, financial experts, and aspiring gangapreneurs, and featured panel discussions on such topics as business intelligence, security, and investment.
“There’s lots of risk,” noted attendee Rudy Viggiano of Cornerstone Financial Group, which was founded at the advent of I 502 for Washington State. “So often with cannabis you’re dealing with a cash-only business, so the first question I ask is, ‘Are you paying your taxes? If the answer is ‘yes’ then we can move forward.’”
Viggiano deals with a mostly 35-55 demographic, people in a transitional phase of their life or career who want to go “full-time” with their pot venture. Their main concern, according to Viggiano, is “Where do I find the money?”
His colleague, broker Grant Girdner, affirmed that funding is a big problem for folks entering the industry.
“I’ve spoken to about half a dozen grow-ops today. They’re so underfunded. So undercapitalized. People get their license and think they’ll need a certain amount of money. But after build-outs and fees, they often find they need twice as much. And many financial institutions are afraid to help out. But there are definitely ways to mitigate the risk.”
“This reminds me of the early days of the Colorado recreational market,” says Will Farley of theCannabis Commodities Exchange. An ‘online wholesale trading platform,’ the CCE was created to address the frequent (and notorious) fluctuations in supply and demand in the marijuana market.
“We wanted to improve on an existing system,” says CCE associate Maz Momeni. Namely a less-than transparent platform called “Roberto’s List” where growers could pay $300 a pop to be showcased to access points and retailers. The list likely served more of the transient tourist population than savvier locals.
“The problem with something like Roberto’s List,” says Farley, “Is that you can’t be out in the open.” The Exchange connects growers with retailers and works strictly with legitimate players – those who have been granted licenses from the state.
‘Out in the open’ was a theme echoed by representatives from Mass Mutual Seattle who came to “explore the opportunity” presented by the emerging market, but who were careful to underscore their commitment to “work within the confines of the law.”
Both reps were conscious of the stigma that cannabis-based businesses are often subject to – one they were now navigating as mediators between cannabis professionals and mainstream money.
“We’re selective in how we speak about it, but we’ve been surprised by the support we’ve gotten within the company.”
They highlighted the medical benefits of cannabis, citing examples from their own lives.
“It’s easy to make laws from up high in some political tower, but it’s different when you’re on the ground. There’s some lingering fear of cannabis from prohibition. You’re afraid, but then something comes to your front door – maybe in the form of an illness – and you open your mind and see some of the plant’s potentials.”
For more information, and images form the event, see the MJBA Dollars and Sense page: http://www.meetup.com/Washington-Marijuana-Business-Association/photos/25757024/431863309/