FREDERICK, Md. (AP) — With more than 150 investors contributing a total of $27 million to his company, Phil Goldberg still couldn’t get a loan from a bank.
It’s not because the banks didn’t want to provide a loan. It’s because they couldn’t.
Goldberg is chief executive officer of Green Leaf Medical, a grower of medical marijuana that is distributed by dispensaries. The company has three locations, including a 45,000-square-foot site in Frederick.
“Most banks would be willing to loan (money) to you with those kinds of numbers, but not a cannabis business,” Goldberg said. “That’s still a big problem.”
Medical marijuana businesses may be legal in Maryland, but they have a significant hoop to jump through in order to be successful. Banks typically cannot offer financial services to marijuana-related businesses because marijuana is still federally illegal.
The Bank Security Act (BSA) requires banks to report any suspicious behavior of illegal activity, which would include any transaction with a marijuana business, and banks can be prosecuted for violating this federal law. There has been no official legislation to help banks around this issue in states where marijuana is at least partially legal. The Financial Crimes Enforcement Network (FinCEN) has issued some guidance to help banks — but it’s limiting and strict.
That means that growers and dispensaries usually have to operate as cash-only businesses. Customers must pay in cash, and the businesses themselves usually cannot open a credit card or apply for loans.
Therefore, Goldberg couldn’t access any of the lines of credit that are typically available to businesses of Green Leaf’s size. He had to put together a private placement memorandum (PPM), an extremely detailed business plan, to present to potential investors.
It’s not just business owners who wish banks could serve medical marijuana companies more fully. Banks do, too.
Kathleen Murphy, president and CEO of the Maryland Bankers Association, has been working with several other bankers associations to address the issue from a legislative standpoint.
“Banks want to provide services to any business that is considered legal in the state of Maryland,” Murphy said. “... Despite the fact that Maryland has set up this medical marijuana structure, and have licensees who are involved in that business ... at the federal level, marijuana is still considered a controlled and dangerous substance and therefore it is prohibited for banks to provide services to these businesses.”
businesses StruggleIn addition to the Frederick location, Green Leaf has others in Pennsylvania and Virginia. Goldberg said that there are “extreme capital needs to build those facilities.” The company is also doubling the capacity of the Frederick location, and this expansion should be completed in January.
Another creative way that Green Leaf has generated capital is through a leaseback. The company built its own facilities in Pennsylvania and then sold them to Innovative Industrial Properties Inc., the leading real estate investment trust for the medical marijuana industry. They paid Green Leaf fully in cash, and then leased the space back to Green Leaf.
“That’s another creative way to get your hands on capital when traditional loans are not available,” Goldberg said.
Green Leaf does, however, have access to a depository account. The medical marijuana company cannot actually use checking services, but it can deposit cash in the account, and use direct deposit through an automatic clearing house (ACH) network to pay its employees.
“That’s probably one of the biggest headaches,” Goldberg said. “Most of the banks that are involved in cannabis will allow you to engage in ACH transactions but won’t allow you to write checks.”
While many bills can be paid using ACH, Goldberg said that it is not as easy as it would be if the company could write a check.
“It just slows everything down; it’s more complicated. It takes more time for our finance department to process,” Goldberg said. “Those things are a struggle on a day-to-day basis. It’s very frustrating.”
In order to handle all of the cash, Green Leaf hires armored trucks to come and take the cash to a bank, just as large retailers such as supermarkets do. Because it is dealing only with cash, however, it has much more volume to handle than a business of its size might if it had access to lines of credit.
The added cost of the armored trucks isn’t necessarily a major problem for Green Leaf, which already employs a large amount of security at its locations.
Ultimately, Goldberg said that if banks were allowed to serve medical marijuana businesses, the people who would benefit most are the patients.
“The people who say, I want to make this purchase on a credit card or a debit card or whatever the case may be, it’s giving them that optionality and treating this like you would treat any other business,” Goldberg said.
The banksOne of the only banks in Maryland to provide banking services to medical marijuana companies is Severn Bank in Anne Arundel County. The bank provides basic services such as deposit accounts and online banking, bank President Alan J. Hyatt said in an email.
Hyatt said that the bank is able to provide basic services to legally licensed companies in Maryland that “meet all regulations” by adhering to a “very strict compliance and monitoring protocol.”
Goldberg said that Green Leaf undergoes regular inspections from its bank.
“We have bank inspections every quarter where they come to our facility, they pore through our records, they try to identify any area that needs improvement or any area of concern,” Goldberg said.
Last year, deposits by medical marijuana businesses made up 4.5 percent of the bank’s deposits, according to New Cannabis Ventures.
“We see this as a niche market for us. We are a full service community bank. Cannabis banking is just one of our lines of business,” Hyatt said in the email. “A need existed and we were able to step in and fill that space. It has been a great experience working with these clients, so if there is an opportunity for expansion we would certainly be interested.”
It is unclear if Severn is the only bank in Maryland that offers services to cannabis businesses, or if it is the only one that advertises it. Severn has a section of its website with information specifically for cannabis businesses.
Other steps have been taken toward easing the burden of cannabis businesses. The app CanPay offers a way for customers to pay for medical marijuana through a debit account, if the dispensary has partnered with the app. There are numerous dispensaries in Maryland that have — although none in Frederick.
High fees often come with the convenience of bank accounts, due to the work it takes to ensure compliance with regulations. Goldberg said that for smaller companies, the high monthly fees that some banks charge — up to $2,000 — could be a deterrent.
“If you go it alone and you don’t have access to (banking) you may need to pay your taxes in cash,” Goldberg said. ”We’ve heard stories about that, the stories of people going in and paying 200,000, half a million, 2 million dollars in straight cash for their taxes.”
LegislationThe Financial Crimes Enforcement Network issued a regulation in 2014, under the Obama administration, that would allow banks to serve medical marijuana businesses that meet a series of requirements.
Two of those requirements were that banks that wanted to provide services to medical marijuana businesses had to ensure that the product would not cross into a state where it is illegal, and that the product would not be used by a minor.
“So these are two provisions that at least for our members have caused significant concerns, because how could they ever really know?” Murphy said.
Groups such as the Cannabis Coalition, which is made up of 33 state bankers associations, have been leading the charge for better legislation to allow banks to serve medical marijuana businesses.
“There’s been pressure to see if there’s some way to provide a path forward for financial institutions who want to provide services to these businesses, despite the federal restriction,” Murphy said.
The Cannabis Coalition isn’t necessarily looking to have marijuana removed from Schedule I entirely. Schedule I drugs are considered to have the highest potential for abuse and have “no currently acceptable medical use,” according to the Drug Enforcement Administration.
Murphy said that many members of Congress are still not comfortable with removing marijuana from Schedule I, but the House of Representatives may be more comfortable with laws that would provide a haven for banks that serve medical marijuana businesses.
“I think what we’re looking for is whatever Congress can pass to allow banks to provide these banking services to marijuana-related businesses,” Murphy said.
That’s where HR 1595, or the SAFE Act, comes in. The SAFE Act was passed in the U.S. House of Representatives on Sept. 25 of this year. A companion bill has already been introduced in the Senate, but it is unclear when it will be taken up.
“When the state of Maryland passed legislation to allow medicinal marijuana in our state, we passed a statement very firmly that we support banking, any business that’s considered legal in the state,” Murphy said. “We will work together to make sure there are policy changes at the federal level to allow that to happen.”
Goldberg said that he has seen a lot of bipartisan support for medical cannabis.
“That gives me a lot of hope,” he said.
While he doesn’t specifically lobby to legalize recreational marijuana use because he knows that there is still a much longer battle ahead, he doesn’t think keeping the drug on the Schedule I list is helping anybody.
“Having said that, I believe in my heart that a lot of the ‘recreational adult use’ users are actually patients that are self-medicating, they’re self-medicating anxiety, chronic pain, et cetera,” Goldberg said. “So it’s a complicated issue.”
He said that the disproportionate incarceration of black men and the prevalence of marijuana are proof that keeping it federally illegal is not wise.
“These people are using the product, the deterrents aren’t working, so we need to make sure that what they’re getting is safe,” he said.