Earlier this month I met with each of the delegation’s banking legislative assistants to talk about State Question 788 and the practical, day-to-day concerns its passage has created.
A broad range of concerns have been created and those concerns are bearing down on OBA-member banks and their customers. What Congress can or will do about it was the topic of the conversation at every stop.
Each office was aware of the issues generally as well as the need for some changes Congress must make if those issues are to be fixed. The potential (political) problem is there’s general resistance to doing anything that will result in de-criminalizing marijuana usage, or making it more readily available, even in those 30 states where its use has been authorized for either medical or recreational purposes.
I’ve also fielded numerous calls from confused consumers about the restrictions on “banking” the marijuana business in any form. Consumers seem to be surprised practical problems are getting in the way of their plans to get in on the ground floor, and they have a hard time understanding why they can’t get financing since it’s now “legal” in Oklahoma.
By the way, for those who think the CBD shops selling derivatives of marijuana (like oils for pain and such) are somehow exempt from all of these restrictions – as I did at first – oops. We’re wrong. These CBD shops are not exempt from the federal classification of weed and the criminalization of acts that occur by growing, packaging, manufacturing, tending to, delivering, distributing, selling or financing any of those actions, at least according to the lawyers. Yet these products are readily available on Amazon.com. Go figure.
Back to consumers. During my conversations with bank customers, most of them began with a bit of a negative tone. Existing and potential customers were angry about the response they received from their bank.
I explained the realities of how banks generally work and are supervised by both federal and state banking regulators. I explained if I were a bank’s lawyer, I would advise the board and management NOT to get into the marijuana financing business.
That having been said, each bank must access its own operation and make a risk-based decision about whether and to what extent it will move forward with “banking” MRBs. They must also access their current policies and other internal directives in an effort to clarify what the bank is required to do today.
Here are six risk areas for banks that may be considering taking on the business or doing more due diligence on its existing customer base. Here’s what I suggest you think through.
Strategic (Is this a business we want to be in? Are our customers demanding it? Is it the kind of business that has a solid upside? What will it mean in terms of regulatory and legal risks if we go into this business?)
Reputation (Do we want to be known in our market as the “marijuana bank,” where consumers can access capital that will make marijuana use available to a larger group of potential customers?)
Credit (How do we best analyze any form of requests for capital from new or existing customers?)
Operational (As a practical matter, what do we have to do about existing customers and what they are or might be doing? Do we have the right personnel in place to review and supervise getting into this business? How do we physically handle the currency that comes to our bank with a significant and distinct marijuana odor?)
Compliance (Even though we can bank legitimate MRBs in our community and not have to fear very much about being referred to the Department of Justice for criminal prosecution, examiners are going to go over our BSA, AML, SARs and other similar rules with a fine-tooth comb. We need to make sure we’re ready and up to speed.)
Liquidity (The marijuana business is likely to be cash-heavy. What does that mean for liquidity purposes at our bank?)
I’ve also learned there are some very creative consumers out there who are already thinking of ways to get around the prohibitions many banks have put into place when it comes to marijuana. For example, the customer may currently run a convenience store that is perfectly lawful. They may also be adding on to the building and dropping a wall between the current business and what is to become an MRB of some sort.
And – they plan to run all the “cash” back through the convenience store. Hmmm.
So – what to do? Well, we’re looking at every possible alternative. For example, the OBA is now part of the “Cannabis Banking Coalition” which is made up of trade association professionals (including the ABA) and several bankers. As a group, we’re trying to develop a plan of action that addresses “marijuana-related businesses” in some 30 states that now authorize the drug’s use for medical or recreational purposes. It’s the same cooperative approach we used to help get S. 2155 passed and signed earlier this year.
But – and here’s a surprise – getting something done in the current political environment is going to continue to be a much larger problem than many of us thought just a few months ago. Well, maybe not so much (of a surprise).
Our state’s banking legislative assistants have various opinions about what might happen, perhaps in the lame duck session after the November elections. My bet is nothing gets done until the next Congress convenes in January, if then. But – nevertheless – it was great to have a chance to visit about the issues that have been created and why they’re so important to member banks.
In the interim period between now and whenever the rules are established by the state health department and/or FinCEN, or maybe even Congress, here are some of the things you might want to watch for and make sure employees follow through on these suggestions with existing customers. A customer may already be operating in the MRB space, but you have no idea that they have expanded their operation this way:
- Rapid funds movement develops for the customer’s business or even personal activity.
- Excessive commingling of funds.
- Current customers who may be acting on behalf of undisclosed parties.
- The customer is more secretive or distant; conceals or disguises the business’ reality.
- You are unaware of any legitimate source of significant and additional funds.
- Is the customer showing any activities in other states or on an international basis.
- Financial statements, tax returns are inconsistent with account activity.
- Deposits made by third parties with no apparent connection to the customer.
- A surge in activity by third parties offering goods and services to your customer’s business.
Many Oklahomans don’t necessarily like or support the use of marijuana for medical purposes. For that matter, many people don’t support the use of marijuana for any other reason and are unlikely to help us get the issue resolved. Whether that’s a good thing or a bad thing depends on your perspective. But regardless of what I think or you think about weed and its use generally, reality is marijuana use is permissive in 30 states plus the District of Columbia. Even so, federal law says it’s still a crime to grow, possess, sell or “bank” it.
Sen. Jim Inhofe and Rep. Steve Russell are both in the camp of refusing to legitimize the use of marijuana for any purpose, regardless of the vote on SQ 788. They’ve both felt that way in the past and I doubt their respective views will change any time soon. So, there’s that.
Sen. Lankford was openly against passage of SQ 788, and he made no secret about it at the time. But I’m not clear yet as to what he thinks about dealing with today’s reality in our state. The same is true for the other House members, but at least now they all understand today’s practicalities of “banking” any MRB or other peripheral business and, in turn, what that means about public safety issues.
Remember the position of the OCC and the State Banking Department about not referring matters like those intended by SQ 788 to the Justice Department doesn’t mean dealing with marijuana is “OK” or “legal.” It isn’t legal. And that includes the related activities of selling healing oils or other potions. The approach being taken by the OCC and the State relates only to an enforcement issue or recommendation.
No one can or will say the business is “legal” until Congress passes a law of some sort making it so.
And therein lies my/our problem. Please stay tuned. I’m on it.