Pub 18 2021 Issue 1

Issue 1 • 2021 21 O V E R A C E N T U R Y : B U I L D I N G B E T T E R B A N K S — H E L P I N G N E W M E X I C O R E A L I Z E D R E A M S Q: So I’m a little confused about how a cannabis company can get a bank account in the first place. I thought federal law kept them from it. Talbert: Cannabis is federally illegal and state-legal depending on the state that you reside in. During the Obama administration, a couple of memos were put out that have been referenced numerous times. One was called the Cole Memo, and then another was put out by FinCEN (Financial Crimes Enforcement Network), the Treasury’s financial services investigation arm. They basically said that marijuana is a schedule one drug. It’s federally illegal. However, we recognize that numerous states have approved medical marijuana, and we want to provide guidance that if you’re going to bank with this industry, then here’s the best way to do it. Financial institutions that were willing to look into the industry take that risk, make a significant investment in people and resources to support this industry by providing banking services, put together programs that followed that guidance along with state guidance. It laid the framework for financial institutions to follow these guidelines and believe that that would help support them if they were ever questioned as to why they were doing it. The challenge is those memos have not been updated since they were written. However, depending on who’s in charge at the White House, the DOJ or the attorney general for the country would say, “We’re not going to worry about that. We’re not going to put resources toward that. We have bigger things to do.” I’m paraphrasing. I’m not speaking for them, but they’ve recognized that this industry is here. Even now, the SAFE Banking Act is being reintroduced in Congress. It’s been going back and forth for years — trying to get some safe harbor for those who are willing to help and support this industry. Q: How is banking different for cannabis companies compared to companies in other industries? Talbert: With any industry that is considered high risk — whether it is a money service business, third- party payment processors, cash intensive businesses, gun companies, strip clubs, medical marijuana, recreational marijuana — anything that’s considered high-risk activity is looked at, and then many banks won’t want to touch those businesses, whether they’re legal or not, because they take a lot more compliance work. They take a lot more customer due diligence. They take a lot more monitoring. They take a lot more resources — both systematically and physically, i.e., employees. They take a lot more work to report on and make sure you’re following all the guidelines regarding what you’re supposed to do for high-risk activities. Many banks don’t like to even mess with any of that stuff, so they don’t accept those kinds of accounts. Marijuana, whether it is legal or not, is high-risk and high-risk takes a lot of extra work. Q: What steps does a new cannabis company need to take to set up its own bank account? Talbert: They will need to reach out to an institution that is willing and prepared to bank marijuana — to bank high- risk activity type of accounts — and they will need to discuss and determine what all is required to open up their business account. A bank like Southwest Capital Bank has been engaged in supporting this industry for a number of years and doing it quite successfully in terms of regulations and customers. There is a significant cost to compliance and to maintaining and managing these types of accounts. It may seem rather intrusive in the beginning based on the amount of paperwork they process. But it’s so that they don’t get their account closed immediately if there’s an issue. It’s so that we don’t call them one day and say, “Hey, you have two weeks to get your account out of here because we didn’t know what we were getting into.” It’s very important for a client and bank to be upfront with the business purpose and focus. When a cannabis customer calls, you have to be transparent. We are 100% transparent, and that’s what we expect from our customers. Just tell us. It’s a no-judgment zone. Q: Do you see these problems that cannabis companies face with banking going away with legalization? Talbert: People talk about Safe Harbor and what will happen if cannabis is legalized federally. As I mentioned before, many financial institutions just won’t want to be involved with high-risk banking activities. The hope is that it will become easier. If it were legalized or if there were Safe Harbor banking laws passed, that would give protections, and more banks would feel more compelled to say, “Okay, I feel a little better protected.” But if they choose not to want to be involved in high-risk activities, it doesn’t matter. It really is irrelevant because today, all of these cannabis companies who are paying taxes, or who are paying their electric bill, or who are buying products and services — they are all in the system already across the U.S. Their money is already in the system. I think people are being naïve and thinking we need it to be legal. It’s already happening. They all pay their taxes to the IRS, and all the money that gets delivered to the IRS is commingled, so it’s already in the federal system. n It’s very important for a client and bank to be upfront with the business purpose and focus. When a cannabis customer calls, you have to be transparent.