First Green Bank in Orlando, Fla., isn’t shy about making its principles public — and that includes working with medical marijuana companies.
Twenty-nine states and the District of Columbia have laws that legalize marijuana in some way, but it remains illegal at the federal level. This tension between state and federal law has created a quandary for financial institutions about how they should approach this growing industry.
At least 368 depository institutions banked the marijuana industry as of March 30, including a handful of credit unions. While there are a few scattered across the country in states that have legalized the drug for recreational or medicinal purposes, the most notable examples are in Colorado, where Partner Colorado CU has made a name for itself as one of the country's leading credit unions for pot banking. Not far from Arvada, Col.-based Partner Colorado, a group in Denver tried a few years ago to establish Fourth Corner Credit Union, which would have been chartered specifically to serve the legal marijuana industry. Fourth Corner's efforts stalled, however, because it was not able to gain access to deposit insurance or the Federal Reserve system.
The number of institutions banking the marijuana industry rose by roughly 20 percent between March 2016 and March 2017, according to suspicious activity reports collected by the Financial Crimes Enforcement Network. Most banks and credit unions serving the pot industry do so quietly in hopes of avoiding criticism, industry observers said.
First Green has chosen a different path, deciding to be vocal about its involvement and support for medical marijuana in Florida.
“We feel very strongly it is about our value proposition,” said Ken LaRoe, the $652 million-asset bank’s founder and chairman. “The benefit it provides to people in need is immense.”
LaRoe’s personal experience with medical marijuana made him receptive to serving medical marijuana firms. In 2011, his wife, Cindy, suffered a traumatic brain injury from a bicycle accident. She developed seizures and the cocktail of medications prescribed to treat them only made her feel worse.
“It was cognitively dulling,” LaRoe said. “For almost a year, she was fighting that and was basically bedridden. It was horrible.”
A friend, who used marijuana to help him sleep, suggested that Cindy, who had been an internist before the accident forced her to stop practicing medicine, give the drug a try. At first she was resistant, LaRoe said, but she relented after a particularly bad day when she suffered dozens of seizures. The seizures stopped for the rest of the day and into the next.
Cindy was eventually able to stop taking her seizure medications and now no longer needs medical marijuana, either.
By working with cannabis businesses, LaRoe saw a chance to help address a public safety issue and to attract new business. The bank started researching the medical marijuana industry in 2014, the same year Florida voters approved a constitutional amendment to legalize the drug’s medicinal use. Last fall, another amendment passed with more than 70% support that expanded the use of medical marijuana in the state.
First Green welcomed its first company with a medical marijuana license as a customer in August 2016 and now works with nine more. The bank holds at least $45 million in deposits tied to the industry, which has helped with its cost of funds, LaRoe said.
The bank doesn’t lend to the industry due to federal asset forfeiture laws. Instead, it charges high fees for the deposit accounts to make up for the added compliance costs. LaRoe said the bank just recently started turning a profit on these efforts.
“You have to be serious about this,” LaRoe said. “It is hard to make money on it.”
While the number of institutions accepting deposits from marijuana firms is growing, First Green is still part of a small group.
No more than 50 institutions have a fully developed business line in the cannabis business, said Robert McVay, a lawyer at Harris Bricken in Seattle. The majority the institutions that file suspicious activity reports are likely dealing with ancillary service providers, such as landlords, firms that sell hydroponic equipment and security service providers, he said.
Fincen received more than 20,000 SARs from filers in 45 states, the District of Columbia and Puerto Rico that included the key phrase “marijuana limited.” That means the institution provided banking services to a marijuana-related business that was deemed to be compliant with its state’s regulations.
First Green’s openness is surprising, industry experts said. The bank sent information about the business line to the media, launched a direct mail campaign to physicians with licenses to write orders for the drug and advertised in journals for the medical and legal professions.
“There really hasn’t been a single bank coming to the forefront to say, ‘We are the bank to this industry,’ ” said Andrew Ittleman, a lawyer at Fuerst Ittleman David & Joseph. “The goal now, to the extent that these banks want to be in the industry, is to stay under the radar.”
A few banks, including MBank in Gresham, Ore., and First Security Bank of Nevada in Las Vegas, that were more open about serving marijuana-related businesses eventually exited, citing the cost of compliance.
The country’s four largest banks — JPMorgan Chase, Citigroup, Wells Fargo and Bank of America — have denied that they serve the cannabis industry, though records showed that more than two dozen applicants to operate medical marijuana dispensaries in Massachusetts had access to funds in at least one account at one of those banks or their subsidiaries.
There are three to five financial institutions in the state of Washington, one of the first states to legalize recreational marijuana in 2012, that are open about working with the industry, McVay said. Roughly 10 others are quieter about their involvement.
The Federal Reserve Board declined to comment. The Federal Deposit Insurance Corp. noted that it requires banks to follow Fincen guidance.
The Office of the Comptroller of the Currency “does not encourage or discourage banks from providing services to specific customers or industries,” a spokesman said. “We expect banks to assess the risks posed by individual customers on a case-by-case basis and to implement appropriate controls to manage their relationships, in accordance with application laws and regulations.”
Being open about working with the marijuana industry poses some risks, industry experts said.
Conservative shareholders may be unhappy that a bank is being highly visible in a risky space. Being vocal could also draw unwanted attention from regulators or law enforcement agencies.
Bankers’ biggest concern in serving the cannabis space is whether they are “going to get arrested and go to jail and everything that comes after that,” McVay said.
Some customers may find it offensive that a bank is working with an industry that is still illegal at the federal level.
Public announcements, such as highlighting work with the marijuana industry, can define an institution for potential clients, said Steven Reider, founder and president of Bancography. This could cause a bank to be labeled the “marijuana bank” when it doesn’t necessarily want that to dominate its image, Reider added.
“If you’re going to be public about it, then you better hope you’re doing it with the intent that it becomes a specific specialty for your organization,” Reider said. “You have to be prepared for the possibility that it does become something that defines your institution. I do think it is another risk, because it certainly has a potential to be a controversial line of business.”
But social norms have changed, observers said. Four more states passed measures in November legalizing recreational use of the drug. Florida’s amendment to expand its medical marijuana law received nearly 2 million more votes than Donald Trump did when he won the state during the presidential election.
First Green wanted to be transparent about serving the medical marijuana industry, said LaRoe, who described himself as a “big advocate” for the industry given his personal experience. So far, the company hasn’t received pushback from customers, he added.
It may also help that First Green has a mission focused on environmental and social issues. Support for the marijuana industry could be seen as being in line with those principles.
“Being mission-driven does affect the decision,” Ittleman said. “It is consistent. If you’re trying to be forward-thinking, or if your customers are primarily younger, then this would be another good feature of a bank.”
Still, an increase in banks' openness about working with the cannabis industry could hurt the push to resolve existing legal issues between state and federal law, McVay said. There may be less urgency to solve this issue if it seems marijuana firms have sufficient banking options.
“The status quo really isn’t OK,” McVay said. “You’re telling these banks to feel free to violate the text of the law, but we won’t arrest you. Everyone wants change.”