Years after legalization, pot shop banking remains tricky

By Emily Hamann / Bellingham Business Journal

Want to buy cannabis with a credit card? It’s possible, if you’re willing to pay.

A few weeks ago cannabis retailer 2020 Solutions rolled out a new pilot program in a few of its stores that will allow customers to pay with credit and debit cards.

The program is offered by company POSaBIT. When a customer at 2020 Solutions swipes a debit card, the service purchases a type of cryptocurrency, which is then used to purchase the product.

Around five customers per day have been using the service, Robert Vera, manager of the 2020 Solutions Iron Street location, said.

“They love and appreciate that we have an alternative,” Vera said. 2020 Solutions also offers CanPay, an app that customers can connect to their bank accounts. They can then scan their phones at the register to check out.

Most customers, however, still pay with cash. It’s cheaper — the in-store ATMs charge a $2 fee, while the POSaBIT system charges a $3.50 fee.

“People are getting used to buying cannabis with cash,” Aaron Nelson, who oversees operations of 2020 Solutions said.

At any other type of retailer, customers paying with credit cards wouldn’t be noteworthy.

But when it comes to cannabis, things are more complicated.

The vast majority of banks, and other financial institutions and services won’t work with cannabis businesses.

“Because it’s illegal under federal law,” attorney Heather Wolf said. “They’re concerned they could lose their federal deposit insurance.”

Wolf is an attorney at the Bellingham law firm Brownlie, Wolf and Lee. She specializes in working with cannabis businesses.

She said having to deal with large amounts of cash is just one of the problems those business face because most banks won’t work with them.

“You can’t generally obtain a loan from a bank,” Wolf said. That means business owners often have to turn to family, friends or other private investors for startup costs and other basic loans needed to run and grow the business.

“It’s a problem for the whole industry,” Wolf said. “Not to have access to capital is a huge hindrance.”

Even though there are a few banks in Washington that will take on cannabis businesses, not every store can access them.

“They’re very selective to the businesses they take on,” Wolf said.

A safety issue

Salal Credit Union has been working with the cannabis industry since it first became legal in 2014.

“We felt like it was a safety issue. It’s a cash-based industry,” Carmella Houston, vice president of business services at Salal, said. “That usually equates to higher risk of armed robbery. We wanted to help them improve the safety risks of not only their businesses, but their employees and neighbors as well.”

Seattle-based Salal is just one of a handful of financial institutions in Washington that will work with the cannabis industry.

“Credit unions have historically been known to service underserved industries,” Houston said. “We felt like this was an underserved industry and felt like it was our responsibility to step up and help solve it.”

Salal is state-chartered, instead of nationally chartered, which makes serving the cannabis industry possible.

Houston said the credit union wanted to help bring the industry out of the shadows, to legitimize it by serving cannabis retailers just like any other business.

“It seemed like an opportunity to be a pioneer in a new industry,” Houston said. “You don’t get the opportunity to do that very often.”

In addition to the same financial services every small business uses, cannabis retailers have some extra needs.

That includes logistics for dealing with large amounts of cash.

Most armored car companies won’t enter into a contract with a cannabis business. So Salal will hire an armored car to pick up cannabis store’s cash instead.

In addition to offering extra services, working with cannabis stores also comes with some extra hoops to jump through.

“There’s a lot of increased regulatory scrutiny,” Houston said. “Regulators definitely take a higher interest in what you’re doing, and they like to visit more often.”

Salal also has to pay extra close attention to its cannabis customers.

“We do a lot of up-front due diligence,” Houston said. “We do monthly, quarterly and annual monitoring.”

Regulators are checking for signs that the store might be laundering money. They’re also constantly checking to make sure Salal isn’t taking on too much risk.

“They’re essentially looking for things that are going to put the financial institution at risk,” Houston said. “That’s where the concentration limits come into play.”

If federal law enforcement suddenly began cracking down on cannabis in Washington, Salal has a plan.

“We have an exit strategy in place,” Houston said. “If we were notified and we had to divest ourselves of all of our [cannabis] deposits in a short period of time, we could do that and it wouldn’t put the credit union at risk.”

Those extra hoops are expensive for the credit union, Houston said, and so are more expensive for cannabis businesses.

“It’s more time consuming; there’s a lot more upfront due diligence and ongoing monitoring,” Houston said. “The cannabis businesses are paying a premium in fees, more than your standard business would, to help us offset those costs.”

In general, only the larger businesses can afford and can get access to any kind of banking services.

Cult Cannabis in Ferndale recently became a bank customer.

“It’s been a godsend, honestly,” Amanda Slusser, general manager of Cult Cannabis said.

Making cash deliveries

Until recently, the store had been working with exclusively cash. That means employees had to regularly drive to Olympia to make payments to the state.

“We do everything by check now,” Slusser said. “We just have to drive to Everett to do our deposits.”

The store is also adopting the POSaBIT service in 2019. Still, all these measures are stopgaps, to solve the problems caused because cannabis is still federally legal.

“If it was federally legal, then we would pretty much be like any other business,” Slusser said.

2020 Solutions, one of the top-selling cannabis retailers in the county, with three local locations, didn’t even use a bank at first.

“We went a year and a half before we had these bank accounts,” Nelson said. “So everything was all cash.”

That makes it challenging to pay business expenses — employees, vendors, taxes.

“You can’t mail cash to your utility company,” Nelson said. Before getting banking, they had to have an employee spend all day driving around and paying people with cash.

Now, 2020 pays employees through direct deposit, and handles the rest with checks.

“We really have minimized the amounts of cash we’re handling now,” Nelson said. There are still some logistical problems, however. Customers still mostly pay in cash, and so all the cash from the all stores must be secured, then transported to the bank to deposit it.

Nelson is hopeful it won’t always be like this.

“Once cannabis becomes legal on the federal level, banks will ease up,” Nelson said. He predicts that will happen in the next two years. “As more and more states are legalizing, the time will come.”