A handful of small Louisiana financial institutions are quietly moving forward with providing banking services for the state's medical marijuana industry, tentatively relieving an uncertainty that dispensaries and growers have faced throughout the U.S.
The institutions’ decisions come despite compliance headaches involved with banking a business sector that stands at odds with federal law.
There also are newfound uncertainties brought on by the Trump administration’s Department of Justice. It has taken a starkly different tack toward the drug than the Obama administration, though President Donald Trump last week appeared to be leaning toward allowing states to make their own decisions on marijuana issues.
So far, the banking landscape for the state’s nascent medical marijuana program remains muddy. If the handful of interested banks decide to pull out, the local pharmacies looking for easy ways to handle their cash flows could run into the same problems that dispensaries and growers in places like Colorado and, more recently, Illinois have faced for years.
For now, the firms poised to grow and dispense medical marijuana in the state have found financial institutions willing to partner with the industry, based on federal guidance that remains in place.
The Louisiana Board of Pharmacy’s rules for marijuana pharmacies require that applicants show proof of a $100,000 line of credit, surety bond or escrow account from a “financial institution headquartered in Louisiana.”
In the board’s application review process, it offered 10 points — out of a possible total of 100 — for meeting that requirement and for showing “a relationship with a Louisiana-based financial institution which will provide services to the applicant such as checking accounts, loans, etc.”
The Pharmacy Board is expected to hand out some of the 10 licenses to marijuana pharmacy applicants at meetings this week.
Most of the applicants to the Pharmacy Board redacted the banking information in their applications. But based on ones that didn't and according to sources close to the marijuana industry, Cottonport Bank, based in Avoyelles Parish, and ASI Federal Credit Union, based in Harahan, appear to be moving ahead in the marijuana banking business.
Cottonport has a dozen branches and manages about $332 million in assets, according to information filed with the Federal Deposit Insurance Corp. Officials with the bank declined to comment. ASI reported $347 million in assets to its regulator and has about 59,000 members.
Sajal Roy, a marijuana pharmacy applicant for the New Orleans region, said he signed a nondisclosure agreement with his firm's bank but added that it was a smaller institution.
Another bank that gave dispensaries the OK — at least temporarily — is Farmers-Merchants Bank and Trust, a Breaux Bridge-based institution that manages about $295 million in assets and has eight locations in the Acadiana region.
The president and CEO of that bank is state Sen. Fred Mills, the pharmacist who ushered through the legislation that enacted the state’s medical marijuana program.
Mills said several people applying for licenses for marijuana pharmacies asked if Farmers-Merchants would act as their bank. After screening the applicants, the bank ultimately gave the go-ahead to three dispensaries.
"I have a lot of homework to do, but preliminarily, we were able to tell these people in the application we were willing to bank them,” Mills said. “But it had a caveat that if there were any kind of regulatory problems, we reserve the right to back away."
Plus, Mills said he had to make sure he’s cleared of any conflicts because he brought the legislation to enact the medical marijuana program.
For years, banks have operated under guidance from FinCen, the U.S. Department of Treasury’s Financial Crimes Enforcement Network. In 2014, a process was laid out for banking the marijuana industry.
The guidelines told banks to file suspicious activity reports on all activity with marijuana businesses, a process Mills said will require a high level of scrutiny and detail.
"We told the applicants we'll have to really monitor your day-to-day activities in a really intense way,” Mills said. “We do that with any kind of high-risk business. … Anything that's cash-intensive is very high risk to monitor from a banking standpoint."
That guidance was based on the so-called “Cole memo,” a widely cited decree from the Department of Justice under the Obama administration that laid out priorities for prosecuting marijuana crimes.
Trump administration Attorney General Jeff Sessions earlier this year revoked the Cole memo, throwing a cloud of uncertainty over the issue.
Citing a shift at Sessions’ Department of Justice, the main bank for Illinois’ marijuana companies recently pulled out of the industry, leaving companies there with the prospect of having to do business solely in cash. Banking woes of marijuana dispensaries throughout the U.S. are well-documented, with many resorting to transporting large amounts of cash in duffel bags.
Trump last week appeared to reverse course, promising to support legislation protecting the marijuana industry in states where the drug is legal, according to a lawmaker. The Associated Press reported White House spokeswoman Sarah Huckabee Sanders confirmed Trump supported states' rights in the matter.
In the meantime, FinCen is telling callers to its helpline that the 2014 guidance on suspicious activity reports remains in place and that it will notify the financial sector of any changes to the rules.
The uncertainty surrounding the issue led to an emerging industry focused on helping marijuana companies find financial institutions. Nathaniel Gurien founded a New York-based firm called Fincann, which specializes in connecting marijuana businesses with banks, often by working with overseas institutions.
One of Fincann’s first clients during its beta phase was GB Sciences, the Las Vegas-based company that won one of Louisiana’s two contracts to grow medical marijuana. The LSU Agricultural Center is partnered with GB Sciences for the operation.
Part of the school’s bid process asked applicants to find a Louisiana bank to do business with, Gurien said. He was able to find two banks here willing to bank the firm, but he declined to identify the institutions. GB Sciences referred questions to the LSU AgCenter, which didn’t respond to questions.
Gurien argues that much of the uncertainty surrounding the marijuana and banking relationship is unfounded. He maintains FinCen provides clear guidance for banks. He also has several more pages of guidance from the agency that he obtained simply by asking officials for clarity.
“The federal government is fully committed to having financial institutions do their job of banking the industry and supervising it and making sure their reporting and accounting is spot on,” he said.
But most banks don’t see the opportunity as worth the uncertainty and risk involved, he added.
A report by FinCen last fall found 400 banks in the U.S. were actively banking marijuana businesses. But that number includes all banks that filed suspicious activity reports on marijuana-related activity, including activity the banks said ran afoul of regulations or raised red flags identified in the Cole memo. It’s unclear exactly how many banks actually provide banking for the industry, but Gurien said the number is far lower than 400.