The ever-changing world of marijuana banking just got more complicated in Nevada. Initially, First Security Bank of Nevada was one of only a few banks here in Nevada willing to accept deposits from medical marijuana companies. Now, First Security has reversed course by choosing to no longer accept marijuana businesses as a customer.
“The board has decided to (essentially) exit the marijuana industry,” said Jason Awad, the chairman of the board of First Security. “We have attempted, at a huge cost of time, to implement a robust compliance program….We found out that the compliance issue is so costly that it’s going to be prohibitive.” Awad went on to say that the industry is getting “mixed messages” from Washington DC.
Most banks want the federal government to provide more clarity before accepting deposits tied to cannabis, so it is no surprise that Awad cited to an unclear federal policy as one of the reasons for First Security ceasing to accept cannabis-linked deposits. Early last year, the U.S. Treasury Department issued a new directive making it easier for banks to do business with the marijuana industry (see Feds Green Light Marijuana Banking). Echoing this policy, the US Justice Department issued its own directive instructing U.S. attorneys not to pursue banks that do business with state-legal marijuana businesses. However, newly confirmed Attorney General Loretta Lynch made noises during her confirmation hearing about being less accepting of marijuana businesses and that too has raised concerns about the feds’ position regarding cannabis banking. The inconsistency in federal policy caused First Security in Nevada and MBank in Oregon to reverse their policy and has kept other banks nationwide on the sidelines.
There are still though a number of financial institutions in various states that do accept cannabis businesses as clients and our cannabis lawyers represent a not insubstantial number of them. Among other things, we assist them with their compliance programs by helping them to set up programs to make sure that the cannabis businesses they accept as clients are operating fully legally under state law. We also assist them in setting up their own due diligence and compliance monitoring programs to make sure that both they and their cannabis customers are doing everything right. These sorts of programs do increase the bank’s costs per customer but most of them (justifiably) just pass this cost on to their marijuana business customers. We wish this were not necessary, but it is and it is better that cannabis businesses have banking — even if they have to pay more for it — than no banking at all. It is NOT the fault of the bank for charging more. If anything, those banks that take on cannabis customers (even when charging more) should be roundly applauded.
Both for Nevada cannabis businesses and for those nationwide, marijuana remains largely a cash-based business, with too few banks or credit unions willing to take the risk of taking on marijuana business customers. Small state-chartered banks and credit unions have been and likely will continue to be the leaders in accepting cannabis businesses for customers. With First Security Bank pulling out of cannabis banking, that will have to be the case in Nevada as well.