Fledgling medical marijuana industry demands banking uplift

Medical marijuana may have some people seeing green but not the banking industry. And there are some — with experience in the finance industry — pushing to change that.

“Is it possible for marijuana-regulated businesses to bank with a traditional financial institution? The answer is absolutely yes,” Tom Lorenz, with Avenir Financial Services, said.

But what would it take for Missouri banks to open their doors for the budding industry? An “uplift” to policies and procedures, according to Lorenz.

Currently, there is a rift between federal and state law that has left banks in limbo.

In Missouri, medical marijuana is legal — 32 other states, the District of Columbia, Guam, and Puerto Rico have also legalized cannabis to some degree. However, the substance remains illegal under the federal Controlled Substance Act.

The difference in policies puts Missouri financial institutions in a difficult position when deciding how to handle the medical marijuana industry.

Lorenz cautions that even banks not intending to get involved need to make changes to their procedures and policies.

“[Marijuana] is in the state. And it is significant enough where — through ancillary or tertiary providers of services, providers of anything — [banks] will be touching the money that has come from or will go to this state-legal medical marijuana industry,” Lorenz said. “So, if you are a financial institution, a depository financial institution or otherwise, in the state of Missouri, you need to react — you either need to defend against or embrace this industry, the regulators will be looking!”

Medical marijuana businesses are high-risk clients, he noted. It is listed on the Controlled Substance Act, a historically cash-intensive industry, and is an industry prone to corruption and diversion.

But it’s not the only high-risk client around, Lorenz added. Some convenience stores, bars, restaurants, pawnshops, and casinos are cash-intensive as well, among others who would also meet the classification.

As with servicing any high-risk industry, the key is competency and financial institutions having policies and procedures that meet the challenges of each industry.

When it comes to medical marijuana, Lorenz noted, this competency includes being able to tell the difference between a normal and abnormal transaction and detecting when money or medicine is being used in support of an illegal activity, including the grey and black market for marijuana and even organized crime.

With Missouri being the 33rd state to bring marijuana into the legal market, in some form, the knowledge is out there.

Additionally, Lorenz adds, “These marijuana-related businesses, the state license applicants, can act now to increase their chances of gaining access to normalized financial services. They can adopt, as part of their general policy and procedures, specific language that will help them best present to financial institutions, maybe even their current financial partners. Avenir can help with this, we can help MRB’s during the application process and after licenses are issued to ensure these MRBs are addressing specifically the risk factors banks see and need mitigated; it is a two-way street.”

“Ultimately, this is the bank’s risk. You can’t third-party your risk away, no matter what anyone tells you,” Lorenz said.

Even if a bank is not doing business with the medical marijuana industry, Lorenz still urges all who intend to be involved to let their financial institution know. With applicants and licensees being public, banks will have the ability to cross-reference information.

“Your current bank may ask to move your accounts; your home mortgage could be at risk. Your checking [account], your savings [account], could be at risk,” he said. “You should tell your bank.”

“I am on a mission; we are here to help both financial institutions and MRBs in Missouri. You do not need a bank-friendly to the marijuana industry now, specifically, but, you will come January 2020. The application process is a great time to prepare and position your business for the due diligence financial institutions will perform.  Naming a specific banking partner now is not required but be prepared, stand out!”