The medical marijuana business in Arkansas will not be cash only, as feared by opponents during last year's campaign for the Arkansas Medical Marijuana Amendment.
But banking services for the business will be expensive, secretive and legally dubious, according to representatives of the financial industry.
Right now, medical marijuana banking is tentatively allowed under guidance from federal regulators. According to federal figures, 368 banks and credit unions were serving the industry nationally in March, an increase of 63 from a year prior.
"The fact is that the legalization in Arkansas is not a defense for nor a cover for the legality by the federal laws, and all banks -- whether they're state chartered, nationally chartered or anything else -- are under the federal laws and regulations," said Bill Holmes, president of the Arkansas Bankers Association.
"I'm not on a side for or against medical marijuana, but I understand why folks are concerned when you look at the problems that have arisen in some of the other states. It is a cash business at this point. With what we've had in Little Rock, let's be honest, do you want to inflame that and have cars driving around with bags full of $100 bills? I don't think so."
Holmes said bankers want to see Congress pass a law allowing banks to serve the medical marijuana industry but added that is unlikely to happen anytime soon.
U.S. Rep. French Hill, a Republican who represents central Arkansas and serves as majority whip on the House Committee on Financial Services, said in an interview that he was no fan of marijuana legalization, but he would like federal lawmakers to study the matter of banking for the industry.
"You've got all these hybrid states that are collecting funds that are in some states like California, finding ways into the financial system through certain unnamed credit unions, but that's obviously not an ideal way to do it," said Hill, a former banker.. "So, I've urged hearings on this. People at the federal level are not going to just -- in an unstudied way -- deal with this."
A total of 29 states, the District of Columbia, Guam and Puerto Rico now allow for comprehensive public medical marijuana programs, according to the National Conference of State Legislatures.
Marijuana remains illegal under federal law, but Congress has prohibited the Department of Justice from spending any money on enforcement to prevent the implementation of state laws that allow medical marijuana.
Both Storm Nolan, president of the Arkansas Cannabis Industry Association, and David Couch, the Little Rock lawyer who sponsored the Arkansas Medical Marijuana Amendment that was approved by voters in November, said at least one bank has committed to serving the industry in the state, though they declined to name any institutions.
Jason Martin, chief executive officer of Natural State of Kind, said he has worked with financial institutions in other states. His business, which plans to open both a cultivation facility and dispensary if granted licenses, became the first applicant to go public in an announcement on Thursday.
Martin began his involvement with the marijuana industry in Colorado and is now involved in marijuana and industrial hemp operations in Oregon, Washington, Nevada, Kentucky and North Carolina.
"We use banking solutions. The less cash we have is better for everybody. It's better for the patients. It's better for the employees. It's better for everybody that we pay. It's safer for absolutely everybody," he said. "I can't say in Arkansas we have a pure solution here, but we have other solutions because we do this business in other states."
The Arkansas Bank Department has issued multiple memos related to medical marijuana and banking.
"The Bank Department has heard from many Arkansas banks and other related parties regarding potential relationships between banks and marijuana-related businesses," Bank Commissioner Candace Franks wrote in one memo. "I know that many questions remain and will continue to develop in the weeks and months ahead."
John Ahlen, deputy commissioner, said the department has received no written inquiries from banks, but has discussed the matter in person or over the phone.
Asked which banks are interested, he said in an email: "All of our banks are interested in the issue of banking marijuana related businesses, but to our knowledge, none of our banks are currently interested in banking marijuana related businesses at this time. However, it is important to note there is no legal obligation for our banks to notify [the Arkansas State Bank Department] if they decide to start banking ... marijuana related businesses under current law."
Any banks that do decide to serve the medical marijuana industry in Arkansas should expect to open a new department to deal with the mountain of paperwork the federal government requires, said Holmes of the Arkansas Bankers Association.
"You're going to have to dot every 'i,' work very closely with whoever your regulator is and then you're going to have to hope that your regulator goes along with you. You're going to have enhanced due diligence ... in person. You're going to have to go interview every month. You're going to have to have a point of sale system that is live at your bank and that is live in your dispensary," Holmes said.
"You've got to identify every transaction. How much was the cash? What was the change? What portion of that is tax? At the end of the day, you've got to know what their courier service is going to deliver your bank and if it doesn't balance to the penny, you can't take the deposit. If the folks in the dispensary want less control than that, you're going to have to walk away from that business, because you've got to have the guys who play by the rules."
Holmes said banks would charge a fee for their services, but would not lend money for loans or commingle it between dispensaries.
"If you commingle it with public monies and it went to a school fund, for example, you'd have to write the school up for having received illegal drug money," he said.
Randy Dennis, president of DD&F Consulting Group in Little Rock, has been providing consulting services to financial institutions since 1993. He said he has been studying the issue and is unaware of any state banks that have agreed to serve the medical marijuana industry.
"It just raises a whole new level of compliance issues, as far as banking medical marijuana growers and sellers. It's still a Class 1 felony with six-year statute of limitations. That's the challenge we're all looking at," Dennis said. "Arkansas banks tend to be very conservative, and I think they're going to step into this area carefully, which I would advise them to do."
SundayMonday on 09/04/2017