There is a lot of green tied up in the cannabis industry, and we’re not just talking about the plant, but also the kind of green that folds.
The US saw $25 billion in legal cannabis sales in 2021, according to Bank of America, while state officials expect the industry to hit $30 billion by the end of this year. In New Mexico, officials have reported $78 million in revenues since adult-use sales began in April.
Naturally, credit unions and banking institutions here and around the country are hoping to receive some of that business. But it’s a complicated landscape: Marijuana remains illegal at the federal level, and banking tends to be an interstate enterprise. So there’s plenty of confusion about what’s allowed and fear of running afoul of the law for bankers and the cannabis industry alike.
That’s why New Mexico Regulation and Licensing Department Superintendent Linda Trujillo and Financial Institutions Division Director Mark Sadowski attended the 2022 Cannabis Banking Symposium in Denver on June 14—part of an initiative to provide banks and credit unions with information on how they can accept business from cannabis companies, despite the federal prohibition. The pair discovered what’s preventing banks from taking the leap, how dispensaries and producers are navigating the new market and the steps needed to make banking easier for all.
Cannabis is still a mainly cash industry, and it doesn’t sound like much will change unless Congress acts, Sadowski tells SFR. In order for major credit card brands to allow cannabis businesses to make transactions with their plastic, “They seem to say probably not until it’s legalized will we actually get the majority of the cash out of the retailers. That’s going to be the first big step of making cannabis sales generally just a little safer,” he says.
The proposed SAFE Banking Act aims to provide security for institutions by guarding them against stiff penalties from federal regulators for serving state-licensed cannabis businesses. The bill has passed the US House of Representatives six times, most recently in April, but has been held up in the Senate, despite calls from lawmakers to move forward with the legislation.
States with recreational and/or medical marijuana programs have seen increases in dispensary robberies, according to published reports. An Albuquerque dispensary was actually broken into ahead of the state’s first day of adult-use sales on April 1. New Mexico passing its own version of the SBA is not off the table, according to Trujillo, but action at the federal level would make it safer overall for businesses to exchange goods, services and cash.
Officials also point to the Cole Memo as a source for protection. The Obama-era guidance, which was rescinded by former Trump attorney general Jeff Sessions, urged federal prosecutors to practice discretion on cannabis cases in states where it’s legal. Trujillo says she would love to see it put back in place.
“There’s no doubt in our minds that some of these measures would, in fact, bring some safety to the business and to the people who work in the business,” Trujillo says.
Banking institutions are hesitant to accept cannabis clients because of the potential loss of assets. The possibility of criminal charges is a secondary concern, Sadowski says, adding that if credit unions don’t perform due diligence, federal examiners or the state could shut down operations.
It takes a steep investment for organizations to accept cannabis-related dollars. They must fill out currency transaction reports for deposits of more than $10,000, in addition to making suspicious activity reports and using anti-money laundering software. The state’s Financial Institutions Division is hoping to streamline information to banks and credit unions so they can automate that process and potentially drive down the cost of expenses, making it easier for them to offer cannabis-banking solutions. Just two organizations in New Mexico—US Eagle Federal Credit Union’s cannabis division, Aery Group, and Southwest Capital Bank—accept cannabis bucks.
“Those two institutions are located in Albuquerque and that really doesn’t do much for outlying, more rural areas of the state,” Sadowski says. “So where are you going to get banking services in Portales, or Silver City, or even down in Las Cruces?”
Meanwhile, dispensaries and producers are finding ways to make the industry less cash-intensive. Officials say licensed businesses throughout the country have tried using cashless ATMs, which can disguise cannabis purchases as cash withdrawals.
“So it’s a risk for the cannabis businesses to try to do some of that creative financing that really is under scrutiny,” Trujillo says.
At Endo in Santa Fe, the dispensary utilizes software that allows for authorized PIN-based transactions. While it could charge the customer a small fee for using a debit card, technical director Alex Costello says the company chose to eat the fees so customers wouldn’t have to pay them.
“Debit was something we had been looking into well before we even got this building,” he tells SFR from the dispensary’s location at 2903 Agua Fría St. “We’re trying to stay on top of the new innovations in the industry. Some people claim they can do credit card transactions, but that’s not truly legal.”
Still, the current landscape requires businesses to arrange cash shipments from armored car companies for deposits. In one situation, according to Sadowski, an institution in another state charges a cannabis entity $10,000 a month in banking fees. Only the largest retailers can afford such fees, he says.
“They’re holding inordinate amounts of cash in their properties,” he says. “They try to cycle it through somewhere, I can only imagine. Some own the ATMs that are in their institutions, so they just recycle the cash through that, but there’s only so much cash that those machines can hold.”
Like their bosses, employees in the cannabis industry can also have a hard time navigating services and receiving mortgages or car loans. Officials believe banks are hesitant to finance weed workers because of the potential for their employers to be shut down.
“That’s the thing with money earned through a cannabis-related business, it’s kind of sticky,” Costello says. “Anything earned in the retail side of things, like if it’s through a dispensary, it cannot be tax deducted, it cannot be put into the stock markets, it cannot be put into federally-backed loans or anything like that.”
Sadowski says he hopes to provide businesses, employees and financial institutions with guidance so they can utilize banking services. It’s an issue Trujillo also says needs attention in the Legislature.