An Annapolis-based community bank has become one of the first financial institutions in the state to allow medical marijuana businesses to open accounts and avoid running cash-only operations.
Severn Bank decided shortly after the state legalized marijuana for medical use in 2013 that the fledgling field of growers, processors and dispensers would need banking services and offered an opportunity. The state’s first dispensaries began opening in December, and Severn now has several business accounts in each industry category.
“This is a start-up, viable industry in the state of Maryland, and they need to bank somewhere,” said Alan J. Hyatt, Severn’s chairman and president, on Wednesday.
Medical marijuana is expected to grow into a multimillion-dollar industry in Maryland in the coming years as it has elsewhere.
In other states that have legalized medical use, the industry has operated on a mostly cash basis because the drug is illegal under federal law. Federal guidelines issued in 2014, however, allow financial institutions to take steps to qualify to offer services in states with legalized use. It is believed that only a small fraction on the nation’s banks are serving medical cannabis customers, a practice the banking industry generally views as potentially putting federal charters and insurance at risk.
Adding marijuana clients fit Severn’s mission of serving the state and entrepreneurs and building long-term banking relationships, Hyatt said. The bank, owned by the publicly traded Severn Bancorp Inc., has added a special compliance team to ensure it is following U.S. Department of Justice directives.
“We vet all of our customers,” Hyatt said. “We have to know … they’re licensed, who they’re selling product to, where they’re buying it from and where the money goes. We don’t think we’re taking unnecessary risk or undue risk. We’re going about this with a lot of vigilance and due diligence.”
Having a business account with Severn means extra daily paperwork for Allegany Medical Marijuana Dispensary in Cumberland, said Sajal Roy, the dispensary’s CEO. He provides Severn with a daily accounting of sales and other information. He also paid a $3,000 fee to open the account and more than $1,700 monthly yet cannot write checks, use credit cards or wire money. But he can use debit cards or credit cards with a PIN to pay bills and employees.
“Without a bank it would be difficult,” he said.
Roy said he began researching banking options just over a year ago. He approached the bank where he held accounts for a separate specialty pharmacy business, but that bank not only declined his request, it shut down all his existing accounts. A grower referred him to Severn.
“We found very quickly there were no other banks accepting medical cannabis money,” Roy said.
It’s hard to tell how many banks may be offering services to medical cannabis business, said Dunstin Eide, CEO of CanPay, a mobile app designed to allow debit payments in the cannabis industry and which is now in use at some dispensaries in Maryland. CanPay partners in eight states with about 20 banks that comply with the 2014 guidelines.
Because of the costs and risks involved in setting up a compliance program, only a handful of banks offer services in some markets, while others, such as Nevada and California, still have no banking available or none taking on new clients, he said.
In those markets, “a lot are dealing in straight cash, others have found exotic banking services that are very expensive,” or are constantly having bank accounts shut down, Eide said.
Some banks don’t publicize their services, hoping to avoid the stigma associated with medical marijuana or avoid a crush of business requests from out of state, he said. But Eide believes that the more transparent banking relationships are, the better.
The availability of banking “is playing a major role in bringing all of this out of the shadows,” he said.