The cannabis industry is booming. One would think that nothing could be as exciting as being a cannabis entrepreneur, but cannabis executives face challenges with financial transactions that many of us take for granted, like getting a bank account, maintaining a securities account, qualifying for life insurance or getting even getting a mortgage. It’s not that the financial institutions are necessarily anti-cannabis, but they are concerned that taking cash that is derived from federally illegal sources could jeopardize their regulatory status. Financial discrimination is widespread throughout the industry and extends beyond the hurdles over which the businesses themselves must jump.
Jaime Lewis, the Board Chair of the National Cannabis Industry Association (NCIA), is also the founder of Mountain Medicine in Colorado and serves as the Chief Operating Officer of Mayflower Medicinals, a Massachusetts-based vertically integrated company operated by iAnthus Capital Holdings (CSE: IAN) (OTC: ITHUF). Lewis has encountered a lot of difficulty with banking, which forced her to borrow money from friends when Wells Fargo shut down her business account but didn’t permit her to access her cash for more than five weeks. After nine different banks, Lewis was able to find Safe Harbor Private Banking. Unfortunately, Lewis isn’t able to get a mortgage due to her position in the cannabis industry.
A prominent Colorado-based entrepreneur, who asked not to be identified, is also a founding member of NCIA. In 2013, four years after launching his cannabis business, BBVA Compass Bank suddenly closed his account (actually 22 separate accounts between he and his partners and their combined business and personal accounts). He moved his business and personal accounts to Wells Fargo and then KeyBank but lost both relationships before finding a Colorado bank that serves about 100 cannabis businesses but likes to avoid attention. As he tried to maintain the BBVA Compass account, which he was told needed to be closed within 30 days, he enlisted the help of Congressman Jared Polis, who wrote a letter to the bank that failed to help sway its decision.
Another challenge for this industry insider has been his investment accounts. After college, he opened a Roth IRA in 1999 at Fidelity and eventually used the firm as the custodian for the 401(k) plan for his company, which provided matching contributions for all of the employees. Fidelity froze all of the accounts suddenly in 2015, but he was able to open personal accounts at E-Trade and another major online brokerage.
Finally, like Lewis, this exec doesn’t believe he would be able to get life insurance based on his conversations with several brokers, and he was previously rejected by Prudential Life.
Chris Bechtel, who currently serves as CEO of Surna (OTC: SRNA) and a Director at RavenQuest (CSE: RQB), was an investor in Ebbu, where he served as a non-voting board member, and was Chairman at Canadian licensed producer Supreme Pharma (TSXV: FIRE) (OTC: SPRWF) in 2015. He had maintained an account with Fidelity for more than three decades when he was informed that they would be closing his account and also removing him from control of the accounts of his children, his parents and his sister. The company never provided a reason officially, but a representative told Bechtel that it was likely related to his cannabis dealings. Ironically, Supreme hadn’t even generated a dime of revenue yet from cannabis sales.
Derek Peterson, the CEO of Terra Tech (OTC: TRTC), was turned down for life insurance last year due to his involvement in the cannabis industry. Mutual of Omaha told him, “We cannot accept premium from individuals or entities who are associated with the marijuana industry.”
Peterson and his company lost their accounts with JPM Chase last year, and TRTC COO Ken VandeVrede had his personal bank accounts and brokerage accounts, including college savings accounts, terminated by a financial institution as well.
More recently, Peterson was in the process of buying a home and had secured a pre-approval, but several ultimately turned him down after reviewing his work history. Peterson ended up selling over 3mm shares of stock to help fund the purchase after having to put a down payment of 65%.
Peterson explained, “Our business could fail from over regulation or, worse, federal intervention, and we need to make sure we have funds to support ourselves if something outside our control affects our ability to continue.”
The cannabis industry faces so many challenges due to federal illegality, but the personal financial discrimination that its leaders must endure could slow the flow of talent into the industry. While many large financial institutions may choose not to serve them, this opens the doors to smaller firms. We have already seen the emergence of several credit unions across the country willing to work with state-compliant cannabis organizations and their employees and owners, and hopefully some other financial institutions will see the opportunity.
Have you faced financial discrimination due to your involvement in the cannabis industry? Have you found some institutions eager to work with cannabis entrepreneurs? Tell us about it in our LinkedIn Group, Cannabis Investors & Entrepreneurs.
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