A growing concern within the state’s medical marijuana community has been whether a bank will step up to process possible millions of dollars in cash generated by the fledging industry, which is expected to be up-and-running in early 2018.
In a June 27 advisory that addressed frequently asked questions, the Arkansas Medical Marijuana Commission was asked if state officials were aware of any banks that will work with growers and sellers of medical pot once operations begin in Arkansas. In its response, the Commission said it “does not comment on the business operations of third parties and does not maintain lists of any such services that may be offered by third parties.”
After the November election in which Arkansas voters approved medical marijuana, Robert Smith and Blake Lewis of Little Rock law firm Friday, Eldredge & Clark issued an alert to Arkansas bankers that even though voters approved Amendment 6, financial institutions providing financial services to a marijuana business could face charges of aiding and abetting money laundering and racketeering. They also said banks could be at risk when approached by marijuana related businesses.
“The cultivation and dispensary facilities to be licensed under the Amendment will need bank accounts. Unfortunately, Marijuana remains illegal under federal law,” Smith and Lewis wrote.
Rep. Doug House, R-North Little Rock, the chief sponsor of more than 50 medical marijuana-related passed during the legislation session, said he is “scared to death” that federal officials may come into Arkansas and shut down the startup industry if certain measures are not in place to address the cash handling issues that may emerge.
According to Washington, D.C.-based New Frontier Data and other cannabis industry analysts, one of the biggest problems facing pot farmers and retailers and other marijuana-related business (MRBs) is that most operate cash-only business models because production and the sale of pot is still illegal at the federal level, which opens FDIC-operated banks up to government seizure.
Under federal law, banks must disclose marijuana-related transactions as suspicious activity. House said this could bring unwanted federal attention and regulatory scrutiny if they choose to service the cannabis industry.
“Banking relationships are important to the (cannabis industry). Imagine an armored truck backing up to the state of Arkansas’ (DFA) administration building … and unloading $4 million or $8 million in income taxes – in cash. What are they going to do?” House asked attendees at the annual meeting of the Arkansas Association of Counties (AAC) earlier this month.
The Republican lawmaker said Colorado and other states are already experiencing problems related to the illegal marijuana trade, where drug dealings that involve large amounts of cash are often targets for robberies and other criminal activity.
“Banking is essential, (but) this scares the absolute living daylights out of me to think of several tens of millions of dollars stored in a shed down at the deer camp in Drew County guarded by five (guys) who just got back from Afghanistan and kept their AR-15s handy,” House jokingly told the AAA crowd. “I’m not worried about them – they are going to be fine. It’s the people that think they can get that money. It’s the people who will try to extort that money. It’s the politicians that are interested in the under-the-table money.”
Serge Chistov, a financial partner in the Honest Marijuana Co. growery in Oak Creek, Colo., said there are a couple of things less than ideal with the current cannabis banking situation.
“One of them is the limited number of banks that will accept cash from our industry. As such, the entire industry is forced to find banks that are willing to work on a cash basis, which is no easy feat,” said Chistov, whose company markets “eco-friendly” cannabis.
The Colorado cannabis entrepreneur also said banks involved in the cannabis trade in Colorado charge a fee to deposit cash proceeds from the different businesses associated with the marijuana industry.
“That is unheard of outside of our industry,” he protested.
Chistov said a third major banking issue cannabis-related businesses are facing is that FDIC-backed financial institutions can’t lend money to them or allow deposits. Chestov said although he is not a grower, manufacturer or owner of the marijuana business that occupies his building, he is a landlord who built a building where his tenant grows marijuana.
“Despite this fact, I as a landlord am unable to deposit the money I earn from the tenant because the money was made selling marijuana,” he said. “When I originally approached the local banks, the answer was a very clear ‘no’. It’s not every day that you hear a bank tell you no when you offer them money.”
FBI ‘WATCHING EVERY STEP’
In April, newly-appointed U.S. Attorney General Jeff Sessions sent out a memo concerning his Task Force on Crime Reduction and Public Safety that was formed shortly after President Donald Trump took office. Sessions said in February he planned to review state-legal cannabis businesses, including possibly rolling back many of the Obama-era guidelines initiated by former Attorney General Eric Holder who said the DOJ would not pursue action against states with voter-approved medical marijuana laws.
Concerning the widely-held view that the Trump administration will crackdown on some states that have enacted laws legalizing marijuana for medical or adult use, including the banking anxieties, House said, “The FBI is watching every step of what we are doing, I promise you they are.”
House and Nolan say they are encouraged that a well-financed entrepreneur or investor group will soon emerge to resolve the banking concerns. Both mentioned a Little Rock bank that has quietly approached investors that could potentially win one of the licenses the Commission will award some marijuana growers and dispensary operators later this year.
Maumelle businessman William Carpenter has told Talk Business & Politics he has formed a limited liability partnership to support an online payment system to resolve the cash-only problem Arkansas’ medical marijuana-related businesses may face. Carpenter’s startup is still under development.