The main bank serving Illinois medical marijuana companies is pulling out of the industry, leaving operators with few options other than dealing in cash.
Bank of Springfield sent a letter to its cannabis clients late last month informing them that their accounts will be closed May 21. The decision is tied to the reversal of an Obama-era policy that discouraged prosecution of those operating under state marijuana laws.
The move is a setback for the industry, which remains a pilot program more than two years after medical cannabis became legal in Illinois. Strict regulations and other obstacles have added challenges to running cannabis companies and kept patient numbers too low for some operators to recoup their investments.
Taking away the bank accounts medical marijuana companies use to pay their employees, vendors and the government is another hurdle. It also eliminates some of the legitimacy and traceability of transactions that banking added to the industry, which had $8.5 million in retail sales statewide in February, according to the Illinois Department of Public Health.
“This is the closest we’ve been to being without banks in Illinois in this industry … which isn’t good,” said Ross Morreale, co-founder of Ataraxia, which owns a cultivation facility in southern Illinois and co-owns three dispensaries. “It makes everything more difficult.”
There are other financial institutions around the state that work with the cannabis industry, but not many. Companies that relied solely on Bank of Springfield or are unable to find another bank might have to start operating exclusively in cash.
PharmaCann, which operates two cultivation centers and four dispensaries, banked with Bank of Springfield, said Jeremy Unruh, the company’s director of public and regulatory policy. The company has another bank in Illinois to fall back on, Unruh said, but some dispensaries and cultivators likely won’t have other options.
“For the industry at large, it’s a real kind of punch in the gut,” he said. “If you’re a dispensary, you need to pay for a wholesale product, and you don’t have a bank. How do you do it? That transaction might have to be in cash.”
The marijuana industry has run up against the banking issue for years.
The drug remains illegal at the federal level, and banks hesitate to get involved since their federal regulators could look at a cannabis company’s bank account and see drug money. In Colorado, which made recreational pot legal in 2012, there have been news reports of marijuana companies paying bills with duffel bags full of cash.
Some banks that did wade into the industry took guidance from an Obama-era Department of Justice memo that discouraged prosecution, but the waters they operated in got murkier when the Justice Department rescinded the guidance in January.
Bank of Springfield informed its cannabis clients in mid-January that it was reviewing its relationships with businesses in the industry. After review, the bank decided to pull out, according to the March letter obtained by the Tribune.
Medical marijuana operators in Illinois hoped they would be unaffected by the Justice Department’s decision since other protections remain in place that prohibit the department from spending federal money to prevent states from implementing medical marijuana laws. Those protections didn’t provide “enough comfort” for Bank of Springfield to continue working with the industry, bank spokesman Andrew Mack said.
“The bank’s stance is that protecting their customers is paramount,” he said. “The Bank of Springfield will not jeopardize any of their customers by working with businesses that operate in the legal gray zone.”
The now-withdrawn Justice Department memo had indicated that if careful compliance was followed, banks would not be prosecuted, Mack added. “The trend had been toward more clarity, and that clarity has gone away.”
Mack declined to disclose how many clients Bank of Springfield worked with in Illinois’ medical marijuana industry.
Losing the main bank for the state’s medical cannabis operators is a setback, but it won’t bring down the industry.
Dealing in cash is doable, it just adds security issues and logistical headaches, said David Knapp, co-founder of Mount Prospect dispensary New Age Care. High banking fees pushed him to start operating solely with cash two years ago.
Everyone, from his employees to the cultivators his dispensary buys product from, is paid in cash. The method has caused some hiccups, especially when it comes time to pay taxes, Knapp said. For security reasons, he declined to disclose how everyone gets paid. But he has found a way to make it work.
“At this point, we’ve got it down to a pretty well-oiled machine,” Knapp said. “But if someone’s used to paying with checks or electronically, they may be in for a little bit of a rude awakening.”
Thrive Dispensary, with locations in downstate Anna and Harrisburg, keeps its money in a safe within a safe, said director and co-owner Gorgi Naumovski. The dispensaries have been without a bank for about six months.
The dispensaries don’t keep a lot of cash on hand since it’s being used to pay bills, Naumovski said. The customers, who paid in cash anyway, don’t notice the shift behind the scenes. But there’s a ripple effect that compounds into a potential problem as cash moves up the marijuana supply chain, he said.
“It’s just a shame,” Naumovski said. “At the end of the day, (the bank is) protecting themselves and it just makes it tougher for all of us.”
Read the full Chicago tribune article here