Wednesday, March 22, 2023
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What You Need to Know About Cannabis Banking

An interview with Money Man Lonnie C. Talbert


The road to setting up a cannabis business gets thorny and tough to navigate when it comes to protecting assets. We sat with Southwest Capital Bank President and Chief Operating Officer Lonnie Talbert for a chat about cannabis banking.

The Paper: So I’m a little confused about how a cannabis company is able to get a bank account in the first place. I thought federal law kept them from it.

Talbert: Cannabis is federally illegal and state-legal depending on the state that you reside in. But back during the Obama administration there were a couple of memos that were put out that have been referenced numerous times. One was called the Cole Memo, and then another was put out by FinCEN, which is the financial services investigation arm of the Treasury. They basically said that marijuana is a schedule one drug. It’s federally illegal. However, we recognize that numerous states have approved medical marijuana, and we want to provide guidance that if you’re going to bank with this industry, then here’s the best way to do it. So financial institutions that were willing to look into the industry, take that risk, make significant investment in people and resources to support this industry by providing banking services put together programs that followed that guidance along with state guidance. It laid the framework for financial institutions to follow these guidelines and believe that that would help support them if they were ever questioned as to why they were doing it.

The challenge is those memos have not been updated since they were written. However, depending on who’s in charge at the White House, the DOJ or the attorney general for the country would say, “We’re not going to worry about that. We’re not going to put resources towards that. We have bigger things to do.” I’m paraphrasing. I’m not speaking for them, but they’ve recognized that this industry is here.

Even now, the SAFE Banking Act is being reintroduced in Congress. It’s been going back and forth for years—trying to get some safe harbor for those who are willing to help and support this industry.

How is banking different for cannabis companies compared to companies in other industries?

With any industry that is considered high risk—whether it be a money service business, third-party payment processors, cash intensive businesses, gun companies, strip clubs, medical marijuana, recreational marijuana—anything that is considered a high-risk activity is looked at, and then many banks won’t want to touch those businesses, whether they're legal or not, because they take a lot more compliance work. They take a lot more customer due diligence. They take a lot more monitoring. They take a lot more resources—both systematically and physically, i.e. employees. They take a lot more work to report on and to make sure you’re following all the guidance in terms of what you’re supposed to do for high-risk activities.

Many banks don’t like to even mess with any of that stuff, so they just don’t accept those kinds of accounts. Marijuana, whether it be legal or not, is high risk and high risk takes a lot of extra work.

What steps does a new cannabis company need to take to set up their own bank account?

They will need to reach out to an institution that is willing and prepared to bank marijuana—to bank high-risk activity type of accounts—and they will need to discuss and determine what all is required in order to open up their business account. A bank like Southwest Capital Bank has been engaged in supporting this industry for a number of years and doing it quite successfully in terms of regulations and customers. There is a significant cost to compliance and a cost to maintaining and managing these type of accounts.

It may seem rather intrusive in the beginning based on the amount of paperwork that they go through. But it’s so that they don’t get their account closed immediately if there’s an issue. It’s so that we don’t call them one day and say, “Hey, you have two weeks to get your account out of here, because we didn’t know what we were getting into.”

It’s very important for a client and bank to be upfront with the business purpose and focus. When a cannabis customer calls, you have to be transparent. We are 100 percent transparent, and that’s what we expect from our customers. Just tell us. It’s a no-judgment zone.

Do you see these problems that cannabis companies face with banking going away with legalization?

People talk about Safe Harbor and what will happen if cannabis is legalized federally. Well, as I mentioned before, there are many financial institutions that just won’t want to be involved with high-risk banking activities. The hope is that it will become easier. If it were legalized or if there were Safe Harbor banking laws passed, that would give protections and more banks would feel more compelled to say, “Okay, I feel a little better protected.” But if they choose not to want to be involved in high-risk activities, it doesn’t matter.

It really is irrelevant, because today, all of these cannabis companies who are paying taxes, or who are paying their electric bill, or who are buying products and services—they are all in the system already across the U.S. Their money is already in the system. I think people are being naive and thinking we need it to be legal. It’s already happening. They all pay their taxes to the IRS, and all the money that gets paid to the IRS is commingled, so it’s already in the federal system.


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