Sarah thought she was ready to purchase her first home.
She managed a reputable business, had moved back in with her parents to pay off bills, and had good credit. Better, anyway, than that of most of her friends, who’d walked into banks and gained immediate pre-qualification for a home loan.
But Sarah, 27, wasn’t prepared for what dragged into seven weeks of anxiety over getting approved, a period culminating in her decision to sign paperwork that claimed she was self-employed, and to have her father co-sign. (Sarah asked that her real name not be used here for legal reasons.)
It’s a problem common to employees of businesses that manufacture and sell marijuana: Sarah, who works at a local medical dispensary, couldn’t get a loan because according to the federal government, her job’s illegal.
Marijuana’s federal status as a Schedule I controlled substance not only affects how dispensaries track income — with many forced to pay bills through personal accounts, or pay extra for scarce banking services — but it also makes it difficult for some employees to buy cars and homes.
“Conversations surrounding banking and financial transactions that would work through a financial institution … are all affected by marijuana’s ongoing federal status,” says Kristi Kelly, the executive director of Marijuana Industry Group.
Kelly’s group, based in Denver, advocates for business-friendly legislation to create a legal, licensed and regulated environment for the sale of marijuana. That includes improving access to banking for marijuana businesses.
Demetrios Karagiannis, owner and proprietor of Third Day Apothecary, says his head grower, who’s paid a decent salary but got into a car accident recently, couldn’t get approved for a new car loan without figuring out a workaround.
“He couldn’t show his income on the federal form,” Karagiannis says. “So what does he do? He ends up having his mom buy the car for him so he can then make payments to his mom.”
Karagiannis feels the strain of federal law on his business, too. Since he hasn’t been able to open a bank account, he does business in cash, which he has to deposit into his personal account before writing checks to pay taxes and bills. Without a payroll account, he can’t give his employees medical benefits.
“It’s kind of interesting because I was an engineer for the government for like 25 years, I have an 800 credit score, and I’m stuck with holding cash,” he says. “It’s like, we want to do things the right way, and they won’t even let us.”
Though there’s a handful of banks in town that will work with marijuana businesses, Karagiannis says they all have waiting lists and charge extra fees.
“There is a fairly rigorous onboarding process and sometimes a business is either too small … or they can’t afford the high monthly compliance fees that a bank is charging in order to satisfy the requirements that financial institution has deemed necessary to serve the cannabis space,” Kelly says. “Or, there are financial institutions that are just not accepting new clients.”
Karagiannis’ business ranks small compared to other local dispensaries, but he’d be more than willing to pay for banking services given the chance.
“Let’s face it. If you have children in your home and a family, you don’t want to keep that kind of cash in a safe at your home,” he says. “You don’t want to keep that kind of cash in a safe at your business, because then you’re putting your employees at risk.”
The Secure and Fair Enforcement (SAFE) Banking Act, introduced by Sen. Jeff Merkley, D-Oregon, in 2017, could help level the playing field. The bill would keep regulators from punishing banks for working with businesses just because they manufacture or sell marijuana.
It’s hard to say if the bill will go anywhere, though senators were still signing on as co-sponsors as recently as August. (Democrat Michael Bennet and Republican Cory Gardner, both of Colorado, were original co-sponsors.)
Tom Howard, the financial attorney behind a YouTube channel called “Cannabis Industry Lawyer” that features colorful commentary on marijuana law, says the SAFE Banking Act and other proposed reforms aren’t likely to pass as long as Republicans control Congress.
In the meantime, the Justice Department (led by weed-hating Attorney General Jeff Sessions) could technically decide to crack down on banks and lenders for working with marijuana-related businesses, because that’s money laundering under federal law, Howard says.
Howard seems to find it slightly ridiculous to start with the SAFE Banking Act, and not with a bill that would just remove cannabis from the Controlled Substances Act, effectively legalizing it. One such bill is the Marijuana Freedom and Opportunity Act, introduced by Sen. Chuck Schumer, D-New York, on 4/20.
“Essentially, if you just take a red pen and go to the Controlled Substances Act that lists Schedule 1 substances … and you just put a red pen through [marijuana], all of these problems are gone,” Howard says. “The money laundering act and all of these other things that are prohibiting … the marijuana businesses from accessing credit from the banks, it gets back to the way that criminal laws are written. And criminal laws don’t say cannabis, but they do say Schedule 1 controlled substances quite often.”
Kelly’s nonpartisan Marijuana Industry Group supports a bill that would do something similar. The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act, introduced in June by Gardner and Sen. Elizabeth Warren, D-Massachusetts, would make it federally legal for states to have their own legal marijuana programs, and includes a provision that would improve access to banking.
Kelly says that earlier in the year, when Sessions rescinded Obama-era guidance that protected states from federal scrutiny on marijuana, fear of a Justice Department crackdown had a chilling effect. Marijuana-related accounts were closed, and some ATM companies stopped serving cannabis clients, creating new business obstacles.
“From a very deeply personal level, people who are trying to get mortgages and buy homes, all the way up to businesses who are trying to secure investment and reinvestment in their existing entities, and everything in between, there’s inconsistent access,” Kelly says. “And so we absolutely still have work to do.”
In the meantime, people like Sarah and Karagiannis will have to keep working around the federal illegalities in their personal and professional lives. Howard says that since Sarah fudged her loan documents, she could technically be found guilty of bank fraud.
“Would she get caught and then prosecuted? That’s a different thing,” Howard says. “I haven’t seen anybody affirmatively fighting the war on marijuana.”
Karagiannis will keep taking his cash to his bank. He says he makes sure not to wear his company T-shirt or name tag, because carting around heaps of cash already makes him look like “a three-eyed drug dealer.”
“I always know on bank day to dress like I used to dress when I worked with the government,” he laughs.