Christopher Borde and his partners had $500,000 in cash, the backing of former governor and US attorney William Weld, and a landlord ready to rent them office space. But, they discovered, the trickiest part of launching their business was getting a bank account.
Borde’s company, MA Care Connect, is a medical marijuana dispensary, and like many others coming into the new market, it is finding that banks want little to do with a business that is still illegal under federal law.
Borde estimated that he tried five banks, including one with which he had a long relationship, but most wanted nothing to do with his money. Finally, he succeeded at a large national bank, but only after he decided not to mention marijuana unless asked. He was not.
“We’re not the Colombian cartel,” said Borde, who helped launch a children’s television station and worked as an investment banker. “It’s a proper business.”
The conflict between federal and state marijuana laws has become a bigger issue as more states legalize the drug for medical and, more recently, recreational, uses. Dispensaries in the other 19 states that have legalized medicinal cannabis have run into similar banking problems, requiring entrepreneurs to hide the nature of their business, establish separate holding companies, or just haul around bags of cash.
Last week, Attorney General Eric H. Holder Jr. said that legal marijuana businesses should have access to the banking system and that the Obama administration would provide rules aimed at easing banks’ concerns, mainly by making these activities low priorities for federal prosecutors.
Bank officials in Massachusetts, however, are far from assured, worried what might happen under different administrations. Their preferred solution: changing federal law.
Among the wary bankers is Michael Tucker, chief executive of Greenfield Co-operative Bank in Western Massachusetts. He said he turned away several companies that inquired about setting up accounts tied to the medical marijuana businesses. It is not only dispensaries that worry Tucker, but landlords who want to lease offices to dispensaries or warehouses to growers.
If those property owners have mortgages with his bank, their monthly payments could be viewed as illegal drug money, he said. “You have relationships with people who are honest and good people,” Tucker said. “[But] we’re going to say, ‘We’re sorry, we’re not going to do business with you.’ ”
Massachusetts is expected to distribute the first medical marijuana licenses by the end of this week. Eighty nonprofit firms have submitted plans for 35 licenses in the hopes of being first to set up shop in Massachusetts in what is expected to become a lucrative business.
Nationwide, legal marijuana was a $1.5 billion industry in 2013 and is expected to nearly double to $2.7 billion this year, according to the National Cannabis Industry Association, a lobbying group.
In most circumstances, banks would welcome a booming new industry. But Massachusetts banks fear that doing business with growers, dispensaries, and even landlords that lease space to these businesses, would trigger additional layers of paperwork, more government oversight, and potential charges of money laundering.
Under federal law, marijuana is considered a controlled substance and banks are required to report any incidents of suspicious or illegal activity to federal regulators. That could mean filing a four-page report every time a dispensary or grower deposits money into the bank — potentially daily, local bankers said.
“There’s not enough value to us relative to the risk to dealing with medical marijuana dispensaries,” said Richard E. Holbrook, the chairman and chief executive of Eastern Bank, the state’s largest community bank. “There are too many downsides.”
Elsewhere in the country, legal marijuana businesses have run into the same problems. Taylor West, the deputy director of the National Cannabis Industry Association, estimates that at least half the group’s 415 business members operate outside the banking system.
That means they have a lot of cash lying around. They pay employees with stacks of bills and buy money orders to send to utilities to keep the lights on. They also must increase security and vary hours of operation so they do not become easy targets for burglars. “The fact that these companies are forced to operate in an insecure way is unsustainable,” West said.
Some marijuana businesses have found ways to get a bank account by, for example, setting up separate holding companies that avoid any reference in their names to marijuana. Even then, once banks get a whiff of where the money comes from, they close the accounts.
Andrew DeAngelo, who operates marijuana dispensaries in California, is part of Green Heart Holistic Health & Pharmaceuticals, which is seeking a license for a Boston operation. In California, he said, his company had to move its account to at least six banks since launching operations there in 2006. Bankers would start feeling pressure from regulators asking questions about the business relationship and origins of the money, and close the accounts.
“You don’t want an all-cash business,” he said. “It’s not safe.”
The state’s banks and credit unions have asked Senator Elizabeth Warren, a member of the Senate Banking Committee, to help in reconciling state and federal marijuana laws.
Meanwhile, the Department of Public Health, which oversees the licensing of medical marijuana, has recognized the banking difficulties. Initially, it required applicants to have at least $500,000 in startup funds in corporate bank accounts. In November, the agency eased the rules to allow the money to be held in personal accounts.
Borde, the partner in MA Care Connect, said the local industry is hoping for a resolution to the banking problems by late spring, when the first dispensaries will probably open.
“What happens when we start collecting receipts, that’s when we have an issue,” Borde said. “I’m not sure.”