New political momentum is gathering behind federal legislation aimed at freeing up banks and similar institutions to work with the marijuana industry, a change that would be likely to transform how business is conducted in the Massachusetts cannabis sector — and make pot cheaper for consumers.
Under a bill filed in the US Senate in mid-April by Democrat Jeff Merkley of Oregon and Republican Cory Gardner of Colorado, banks, credit unions, and insurance companies could not be sanctioned by financial regulators for providing services to state-licensed marijuana operators.
The measure, dubbed the Secure And Fair Enforcement (SAFE) Banking Act, already boasts 20 senators as sponsors. An identical proposal has attracted broad support in the US House, where a key committee two weeks ago voted overwhelmingly — and on a bipartisan basis — to approve the idea. Even Treasury Secretary Steven Mnuchin has said lawmakers should move on the bill, which is cosponsored by US Representative Jim McGovern of Massachusetts and has the backing of banking industry groups.
The federal prohibition on the drug keeps most banks on the sidelines of the fast-growing marijuana industry. But Brandon Pollock, chief executive of the Massachusetts marijuana company, Theory Wellness, said the explicit protections of the SAFE Banking Act would probably encourage many more financial institutions to get into the cannabis game, improving the cost, convenience, and choice of services available to companies like his.
“There could be a lot of ripple effects that would have huge benefits to us,” Pollock said.
One obvious benefit would be increased competition. Five years after the debut of recreational sales in Colorado, cannabis sellers there have just a handful of institutions to choose from — and several of those banks have long waiting lists.In Massachusetts, only BayCoast Bank in Swansea and GFA Federal Credit Union in Gardner openly serve the state’s recreational pot companies.
Financial institutions that do work with marijuana operations are typically smaller, have few branches, and offer only basic services — at a premium price. GFA, for example, charges each of its 14 cannabis clients about $5,500 a month for a checking account, plus fees on most transactions, while non-cannabis businesses pay under $100.
“It’s not a very competitive marketplace,” said David O’Brien, executive director of the Massachusetts Cannabis Business Association. “Every other type of business is able to bank within its region, and more often than not, within the same town. Cannabis should be treated like any other business.”
GFA chief executive Tina Sbrega explained that working with marijuana money while complying with onerous federal regulations is simply expensive: GFA must thoroughly vet every potential marijuana client to ensure the company is following state law and isn’t secretly controlled by another party, a process that can take four to six weeks. The credit union is also required to regularly file “suspicious activity reports” with the Financial Crimes Enforcement Network, or FinCEN, about all its cannabis clients, and is subject to intensive audits. And GFA staffers manually monitor marijuana accounts and transactions to reconcile them with marijuana sales data from each store.
Then there’s the cash: While most cannabis stores accept debit cards, Pollock said about 60 percent of pot consumers still prefer the anonymity of paper money, which is expensive to transport and triggers a whole separate set of counting and security requirements.
“When I say we have our eyes on the money, I mean it literally,” Sbrega said. “Every single day, we’re validating every single deposit and outflow that comes into or out of the account to make sure it’s not suspicious.”
O’Brien, Pollock, and others are hopeful that the SAFE Banking Act would allow marijuana operators to more readily accept debit and credit cards, drastically slashing the amount of cash in the system and in turn reducing costs.
Another great hope of Pollock and others in the industry is that legislation would encourage banks to lend to marijuana firms, which today typically finance their growth by selling off equity or with very-high-interest private loans.
“Getting access to more conventional financing would let us grow much quicker, and that would lower the prices we offer to consumers, too,” Pollock said. “Marijuana prices in Massachusetts are high, in part, because marijuana businesses have such high borrowing costs.”
The advent of institutional lending could also help Massachusetts and other legal-marijuana jurisdictions that are struggling to boost ownership of marijuana licenses by minorities and other disenfranchised groups, whose communities were disproportionately targeted with arrests when the drug was illegal.
“We’re implementing these social-equity programs and throwing licenses at people, but if there’s no access to capital, you’re not really setting them up for success,” said Shanita Penny, president of the Minority Cannabis Business Association.
Penny praised language in the SAFE Banking Act that would mandate data collection around diversity and inclusion in the industry, calling it a necessary safeguard in light of the financial industry’s history of racist practices such as redlining.
She also argued that institutional lending at fair interest rates would help small businesses better weather unexpected downturns — and help minority entrepreneurs avoid potentially predatory loans and management contracts being offered by some larger operators amid the current dearth of capital.
Employees of marijuana firms, too, could benefit from banking-law changes. Some workers have had their accounts shuttered or mortgage applications denied because their paychecks come from a cannabis company.
Seven months after taking a job with medical marijuana firm Garden Remedies in April 2016, Mike Climo said his longtime bank, Pentucket Bank in Haverhill, called to say it was closing his account after an audit revealed his employer.
“I was with them for 24 years,” Climo said. “I pleaded my case, saying, ‘Hey this is a new industry, you guys should be getting prepared for it.’ But that conversation was quite short.”
Climo eventually won a reprieve after talking with Pentucket’s president. But the bank eventually closed his account anyway after then-Attorney General Jeff Sessions rescinded Obama-era legal protections for marijuana businesses in early 2017.
“It was very disruptive — I had to set up new online banking, auto-pay for my bills, everything,” Climo recalled. “I’d been with this bank forever but they had no loyalty at all. I was like, ‘You guys used my money for 24 years, and this is what I get?’ I never even bounced a check with them.”
Pentucket Bank declined to comment.
Climo said he hopes for banking reforms, as he’s anxious his new bank, which he declined to name, might also show him the door. Under the SAFE Banking Act, he figures, even institutions that don’t work directly with marijuana companies might be less likely to kick a customer who works for one to the curb.
Penny, for one, is optimistic about the chances for reform. Sensing the momentum around the issue, her group moved up by six months its annual policy conference, originally scheduled for the fall, and recently conducted a successful lobbying blitz.
“It addresses something that everybody in the industry needs, from consumers to employees to owners,” she said of the banking legislation. “It’s absolutely now or never.”