Big banks are just saying no to the marijuana business, while some smaller banks and credit unions are showing sparks of interest.
The split within the banking industry is emerging after new federal guidance that's designed to help bring state-licensed pot merchants out of the financial shadows.
"It's just a lot of paperwork and a lot of hassle for these big banks," says Micah Willibrand, an executive at the banking compliance firm Accuity. "There's too much risk involved to put your neck out like that. And that's why the smaller, more nimble players are able to sort of go in and fill that void."
Numerous small banks in states where pot sales are legal have been scrambling to evaluate the guidance in the week since the Financial Crimes Enforcement Network unveiled it. One key question inside banks is how expensive it will be to ensure that marijuana businesses are not using their bank accounts to launder money.
"Whenever we do a new product or service, we do an intense evaluation," says Joanne Coy, spokeswoman for Columbia Bank, a $7 billion-asset institution with branches in Washington state and Oregon. "We have not had a chance to do that. We still see some issues and concerns that need to be addressed."
Complying with the regulatory guidance may be somewhat easier for small banks and credit unions that operate within a single state than it is for larger, multistate institutions, which note with concern that federal law still outlaws marijuana.
The guidance calls on banks to scrutinize pot business owners who live outside the state where their firm is located, in an effort to prevent the diversion of pot into states that prohibit the drug. That kind of scenario is less likely for an institution that only has branches in one state.
Some community banks are looking closely at the new business opportunity, says Robert McVay, a Seattle lawyer who represents marijuana businesses and banks. Banks that provide accounts to marijuana merchants are expected to charge high fees because of the risks and costs involved.
McVay expects that some Washington-based institutions will decide the risks are worth taking, while others will reach the opposite conclusion. "It's not like every single credit union in the state is going to jump into this," he says.
The guidance lays outs numerous factors that banks are supposed to consider when deciding whether to do business with a marijuana firm. Those steps include reviewing the business license application, developing an understanding of the firm's normal activity and conducting ongoing monitoring for suspicious activity.
Fincen is on the front lines of the fight against money laundering, and it has reason to be concerned that cash-only pot businesses could be used to hide criminal behavior.
Other federal banking regulators, including the Federal Deposit Insurance Corp., the Office of the Comptroller of the Currency and the Federal Reserve Board, stated late last year that they would wait to read Fincen's guidance before deciding whether to issue guidance of their own. Those agencies have been tight-lipped in the past week.
Representatives of the marijuana industry are pushing hard for a change in federal law to attract the interest of more banks, arguing that cash-only pot businesses need accounts for security because they are obvious targets for robbery. But in the meantime they're hopeful that the regulatory guidance will provide sufficient comfort for some smaller banks.
"There is an opportunity here, and individual institutions have to evaluate the best way to move forward," says Taylor West, deputy director of the National Cannabis Industry Association. "As an industry we don't need every bank in the United States to suddenly open up their doors to our business."
Indeed, big banks are generally slamming their doors shut. Some large institutions say unequivocally that they won't provide banking services to pot businesses in the 20 states where medicinal or recreational marijuana is legal.
"Under federal law, the sale and distribution of marijuana is illegal," the $65 billion-asset Bank of the West's spokeswoman Debra Jack says in an email. "Unless and until the law is changed and we receive further guidance from the federal regulators, our position remains unchanged."
The nationwide legal cannabis market was worth $1.5 billion in 2013, according to ArcView Market Research. While that number is growing rapidly, and is expected to reach $2.6 billion this year, it is still relatively insignificant to large banks.
"The big banks have no interest in looking at this. There's just not enough money for them," says Willibrand. "There's just not enough there to put their entire business at risk."
In fact, at some big banks the concerns about the marijuana business are leading to scrutiny of commercial mortgages in which the landlord is leasing space to a pot business.
The Denver Post reported on Tuesday that Wells Fargo (WFC) has told commercial borrowers in Colorado that they'll have to evict the tenant or find another lender to refinance their loan.
A Wells Fargo spokeswoman confirmed that the bank's policy is not to lend on commercial properties leased by marijuana-related businesses.
The policy is similar at FirstBank, a $13 billion-asset institution based in Lakewood, Colo.
"We will not originate a new loan to a property owner that is leasing space to a marijuana business," Jim Reuter, executive vice president at FirstBank, said in an email. "We have made exceptions in which an existing borrower has entered into a lease with a marijuana business that occupies a very small percentage of the property."