This is a cash storage situation most cannabis businesses would like to avoid. (Flickr/Nick Ares)

With news that the State of Illinois has approved regulations for tie breaking scores for dispensary license awards, it seems likely the state could be handing out 75 new licenses next month. What isn’t so clear is whether or not all of those 75 license winners, as well as the 40 craft grow, 40 infusion, and likely dozens of cannabis transport license winners will have a bank to hold their money when they start their businesses. 

“There’s a math problem here,” said Michael Busch, CEO of Burling Bank, “Where we’ll have 75 dispensary application winners, and to the best of my knowledge we have five banks actively banking these people.”

“What I fear is you’ll see a lack of progress that the authors of the [adult-use cannabis] legislation wanted. They passed legislation so people could participate in this industry,” said Illinois State Treasurer Michael Frerichs. 

For most businesses, opening a bank account is simple, you just go and get one. But for the cannabis industry, most banks won’t even consider opening an account, because cannabis is still a Schedule I controlled substance, and any involvement with a cannabis business, such as banking, could still potentially turn into a federal offense prosecutable by the Department of Justice, even though it is a legal business in Illinois.

Cannabis businesses, especially dispensaries, have an especially high need for bank accounts, because credit cards companies will not process cannabis transactions. As a result, many dispensaries handle hundreds of thousands of dollars of cash a month. Without a place to take deposits, in the early days of legalized cannabis, some dispensaries kept their cash in safety deposit boxes, hired squads of armed guards and often paid cultivators with suitcases of cash.

Although federal banking regulators have given a limited green light to taking cannabis industry deposits, the fact that cannabis remains federally illegal gives pause to most bank directors. State-chartered banks, who are still regulated by the Federal Reserve but have some oversight from state regulators rather than federal ones, are more likely to take the risk of taking cannabis deposits, since in Illinois and other cannabis-legal states, they have some regulatory cover from their state governments. But in Illinois, it’s not a very big number. 

“You’re looking at closer to 8 to 12 [financial institutions],” says Chasse Rehwinkle, Acting State Banking Director at the Illinois Department of Financial and Professional Regulation. “Which is not a great number. It’s enough to provide the current industry with some sufficient banking products. I would always appreciate more banks.”

But, Rehwinkle admits, most of that “8 to 12” number are banks that are banking cannabis as “one-offs” for existing clients who already have large deposits with their bank, and are not interested in taking more cannabis clients. 

Putting that number into perspective, there are 272 state-chartered banks in Illinois, and hundreds more federally-chartered banks operating in the state. So, the number of choices available to new cannabis license holders is pretty slim.

Some of the few banks in Illinois banking cannabis require cannabis business owners to sign non-disclosure agreements, cannabis business owners have told Grown In, because the banks do not want too many new customers. They also don’t want to be tagged by federal regulators as supporting a federally illegal business, say bank managers.

“I get it from the bank perspective they don’t want to be super open about this. They’re very worried if they are bombastic about banking cannabis the feds will come down on them,” said Rehwinkle, who is working on a solution to introduce cannabis businesses to banks willing to take their business. “We have been trying to get more entities interested. We have some larger institutions sniffing around the space, but have not been able to dip their toe in because of the enhanced compliance but also because of the federal aspect, and they’d rather wait until the federal side is figured out.”

Costly compliance

Managing compliance for cannabis banking is an enormous task and takes a long time to ramp up, bank managers tell Grown In. Burling Bank’s Busch says his bank could overcome the sunk cost of compliance because Burling already had significant experience with high risk accounts such as commodities traders at the Chicago Board of Options Exchange and Chicago Mercantile Exchange. 

“For our bank specifically, and community banks in general, we want to remain relevant from a livelihood standpoint,” said Busch. “We recognized a correlation between trading companies and some of the beginning cannabis companies. They are sophisticated operations, used to dealing with a highly regulatory environment, well capitalized, and entrepreneurial. High capital and potentially high growth. We saw that as a service that needed to be provided to the industry from a safety and social aspect.”

But, Busch says, many banks looking at banking cannabis are taken aback. “‘Wow!’ they say. ‘This is a really expensive endeavor and intense from a capital and operations standpoint.’” So, they don’t get in the business, Busch says.

The compliance process for banking cannabis is onerous. Federal regulator guidance for banks calls for filing weekly suspicious activity reports and bank staff must be well-trained in anti-money laundering regulations. For every ten or so cannabis accounts, banks should have at least one full time person working on compliance, say bank managers. Those costs translate into higher fees for cannabis deposit accounts, which run anywhere from $1,500 to $5,000 a month, cannabis business owners tell Grown In.

Todd Gunderson, who leads Credit Union 1, which is also willing to talk publicly about their cannabis banking business, says compliance is the main theme for banks in cannabis.

“We’re not banking the cannabis industry, we’re banking the compliance industry and the businesses just so happen to be in cannabis,” said Gunderson, who reports his credit union spent close to $500,000 building compliance procedures and regulatory technology before it began taking on cannabis banking clients. 

“We did this the right way, and if you bank with us that will provide some confidence for anyone you’re dealing with throughout the state of Illinois, because they’re going to get regulated as well,” said Gunderson.

Pushing for more banks

“We have some members that want nothing to do with it and others that are very interested in it under the right conditions,” says Jerry Peck, Senior Vice President at the Community Bankers Association of Illinois. “There are several banks that are very aggressive, but several others that have said this is a great opportunity to bring in deposits and liquidity for the bank. It all depends on the appetite for risk.”

But, Peck says, the lack of banks actively recruiting cannabis businesses is a concern, especially since most state-chartered banks have limited assets. To spread risk, many banks limit the number and amount of deposits they’ll take from a particular industry, thus limiting the number of cannabis clients banks will take on, says Peck.

“When you have that few number [of banks] that are aggressive, then they can reach a concentration that regulators don’t like. Whether it’s cannabis or construction or agriculture, they’ll come in and say you have too many eggs in one basket and ask you to diversify your portfolio. You can be aggressive and add on, but at some point there’s an upper limit that regulators will frown on,” he says.

Since his office is responsible for taking in state tax revenues, Treasurer Frerichs has seen the risk of not enough banks for cannabis since medical cannabis was legalized in 2015.

“We’ve established a banking service to collect taxes and fees from cannabis businesses. We don’t want cannabis businesses to drop off tax payments in duffel bags full of cash. It has transport problems and creates problems for us,” Frerichs said.

The Treasurer’s office has created a capitalization program to deposit state funds in banks that take cannabis deposits, but that program has had few takers, Frerichs says. The Treasurer, in conjunction with trade groups like the Community Bankers Association of Illinois, has also conducted seminars for bank managers intrigued by the massive cash flows cannabis businesses generate. But, says Frerichs and others, getting more banks to serve the cannabis industry is mostly a federal problem, and the state is limited in how much it can do.

“This is a problem not just for Illinois, but the whole country. The vast majority of the citizens of the U.S. have some access to legal cannabis. It is frustrating and disappointing that the federal government doesn’t update its laws to reflect reality. Without those changes we will not be able to provide enough banks to provide services for new cannabis businesses. Many will be people of color who can’t find banking. With someone just off the street without credit history or experience, they’re going to have real difficulty setting up their businesses. That will undermine the entire intent of Illinois’ social equity legislation,” said Frerichs.

Federal solutions needed

Since most of banking–even for state-chartered banks–is regulated by federal agencies, any real change to how cannabis is banked will have to come from Congress. 

“The 2008 Farm Bill, descheduled industrial hemp, so that no longer triggers money laundering laws,” says Peck. “That would be extremely helpful. So that banks would feel some comfort about being in this space without prosecution or fines.”

The bigger change would be passage of the SAFE Banking Act, a comprehensive bill that the Democratic-controlled House included as part of the second Coronavirus rescue package, but has yet to be considered by the Republican-controlled Senate. The legislation would provide “safe harbor” to banks that serve cannabis businesses, essentially barring regulators from penalizing them for working with cannabis, and would allow banks to not only take deposits from cannabis businesses, but also allow them to make loans to cannabis businesses, an activity the Federal Reserve bars all financial institutions from doing. 

“It comes down to emphatic allowability. You have some sort of change in law that specifically provides allowability so that banks can provide services to cannabis companies without fear of repercussion,” says Busch from Burling Bank.

Finding a bank

In the meantime, applicants for the next set of cannabis licenses are having trouble finding a bank, especially social equity applicants with few business or banking relationships.

Al Grace, a now-retired financier advising cannabis social equity applicants, has been taken aback at how hard it has been to find a bank willing to take social equity applicants – and Grace has the advantage of being one of the founders of Loop Capital, the largest Black-owned investment in the country.

“Some of the cannabis companies are fortunate enough to get banks to cooperate, but they are not sharing the names. They’re not,” said Grace.

Grown In has spoken to dozens of license applicants, dispensary and cultivation owners, only a few were willing to reveal who they bank with. All of them asked that Grown In not reveal those banks, and only a couple were willing to ask their bank if Grown In could contact them, so sensitive is the issue of finding a bank for cannabis in Illinois.

“You just don’t want to risk it,” said one Illinois applicant who wished to remain anonymous for fear of losing their account. “It’s a really big deal.”


Editor Mike is a co-founder and the editor of Grown In, a U.S. national cannabis industry newsletter and training company. His career has taken him from Capitol Hill to Chicago City Hall, from...