High cost of banking hits Marijuana retailers
Challenges and Hopes for Cannabis Retailers in Washington: The Impact of the SAFER Banking Act.
It's been more than a decade since Colorado and Washington became the first states to legalize recreational marijuana. Since then, 19 states have followed. But along the west coast, which dominated the production of high-quality marijuana before legalization, the market is teetering.
Abill making its way through Congress could reduce the risks banks and credit unions take on when doing business with marijuana retailers in states like Washington, where the drug is legal.
Sen. Maria Cantwell (D-WA), who is a cosponsor of this bill as of February, said in a statement she is supporting the SAFER Banking Act because marijuana dispensaries — often unable to bank and therefore stacked with cash — can be targets of robberies.
While many Longview dispensaries have found a bank to work with, they are still subject to fees other retailers don’t deal with because they are selling a product not federally legal.
The SAFER Banking Act could cut those costs by keeping federal regulators from penalizing banking institutions providing financial services, like opening savings accounts or lending, to marijuana retailers.
If the act passes, CEO of Longview’s Twin City Bank Neil Zick said he doesn’t foresee a “change in the landscape” of cannabis banking, but the bill’s guarantee of safe harbor might make other banks interested in doing business with dispensaries.
“We monitor their activity, how they are complying with the law,” Zick said of the bank’s marijuana retailer clients. If the bank ever gets to the point where it is uncomfortable doing business with a retailer, they can pull the plug.
But so far, Zick said Twin City has never had a problem with regulators or the federal government and the dozens of marijuana retailers it serves.
“Most banks have already made the decision on whether they want to do business with marijuana retailers or not,” Zick said.
Twin City has bank accounts with more than 40 marijuana dispensaries across the state, including Longview Freedom Market. The bank mostly holds deposit accounts for dispensaries and does a little bit of fairly restrictive lending, Zick said.
The bank is one of seven Washington banks and credit unions that offer services to marijuana dispensaries.
More roadblocks
Other industries are hesitant to do business with marijuana retailers because the business is not federally legal, Zick added, and that can drive up the costs of operating a legitimate marijuana retailer.
Porfitio Chavez has been the manager at the Longview Freedom Market since it opened in September 2014. It was one of the first cannabis dispensaries opened in the state, and part of the first chain of retail marijuana dispensaries in Washington.
Washington was the first state in the U.S. to legalize the sale and use of recreational marijuana in 2012, and since then more than 600 dispensaries have opened in the state.
Running a dispensary is similar to running a liquor store, Chavez said: The Washington State Liquor Control Board randomly audits the retailer to check that it has up-to-date business licenses, and the company is subject to yearly safety audits and monthly sales audits from its bank, just like how it would a liquor store.
But Chavez said some companies are still sketched out doing business with a marijuana retailer.
“We have a higher cost on a lot of things. I’ve had companies not even want to work with me because we’re cannabis,” Chavez said.
He said Freedom Market has lost business with a number of support-industries due to the perceived risks of working with a marijuana retailer. Businesses that have declined working with Freedom Market include a bottled water company, a floor mat retailer and a fire extinguisher company.
Freedom Market used to buy insurance from local provider Longview Insurance Inc., but the insurer began charging higher rates to account for the increased financial risk of doing business with a marijuana retailer, Chavez said.
According to a representative from Longview Insurance, the company no longer provides services to marijuana retailers because of the high cost of insuring such a business.
The SAFER Banking Act has received support from entities ranging from banking institutions to the National Rifle Association.
