Business owners in one of Maine’s most profitable industries say that a lack of banking options leaves them either mired in frustrating fees and submitting to privacy violations, or forgoing banking altogether and running risky cash-only options.
Proposed legislation seeks to fix that.
Sponsored by Rep. Sally Cluchey, D-Bowdoinham, the bill would authorize a study into how Maine can support the banking needs of the recreational and medical cannabis industries, which last year brought in about $500 million and employed thousands of workers.
Maine is home to 332 state-licensed recreational cannabis businesses, including cultivators, store owners, manufacturers and testing labs.
In the medical market, according to Feb. 28 data, there were 1,634 providers — known as caregivers — and 77 active dispensaries.
“While some credit unions will work with cannabis-related businesses, these services are prohibitively expensive and place substantial burdens on the financial institutions,” Cluchey told the Committee on Veterans and Legal Affairs Committee at a hearing this week. “Without access to multiple banking options, many cannabis-related businesses have no choice but to operate on a cash-only basis.”
A cash-only puts both the businesses and their employees’ personal and financial security at risk, Cluchey said. It also increases the likelihood of “bad actors” entering the illicit market.
There are drawbacks for the banks, too. Because cannabis is still federally illegal, financial institutions run the risk of violating the Controlled Substances Act and being considered money launderers under the Bank Secrecy Act.
Financial institutions have said the regulations in place are burdensome for banks. Many would rather continue not serving cannabis businesses than take on the burden.
‘UBIQUITOUS PROBLEM’
The committee approved a nearly identical version of the bill proposed by Sen. Nicole Grohoski, D-Hancock, in 2023, but it died on the study table.
The bill being considered this year directs the Office of the Maine State Treasurer to examine banking solutions in other states that have legal cannabis programs, the barriers and costs to the industry for banking services compared to other businesses, banking efforts at the federal level and what the Legislature can do to encourage federal action. The treasurer would be required to submit a report by Dec. 3.
Ohio, Oregon, Virginia and Washington are among the states that have passed laws specifying that financial institutions serving legal cannabis businesses are not committing a crime, Grohoski said. It’s a small step, but could provide an additional layer of protection.
Other states, including Michigan, Nevada, Ohio and Utah, have created closed-loop payment processing systems where the state acts as the payment processor.
“This is a ubiquitous problem across the country,” Grohoski said.
Cluchey said another option the committee discussed in the bill’s previous iteration was a state-run bank or “depository” where cannabis businesses could deposit and withdraw money but would not have access to lending.
INDUSTRY SUPPORT
Cluchey’s bill received broad support during the public hearing from industry participants, who bemoaned the costs and hurdles of cannabis banking.
There are at least five banks and credit unions that serve cannabis businesses: CPort Credit Union, Five County Credit Union, Evergreen Credit Union, Skowhegan Savings Bank and Maine Savings Bank.
“They all come with their own issues,” said Catherine Lewis, who operates in both the medical and recreational markets.
Business owners complained of monthly fees as high as $500 a month to keep their accounts open, or charges of up to 1% of their deposits. Accounts sometimes get closed with little notice, they said.
Business owners also pushed back against requirements that the banks access their accounting software, have lists of their vendors and require 100% of their profits to be deposited.
The additional access and paperwork “shows complete discrimination, because no other industry is asked for any of that information,” Lewis said.
Lizzie Hayes, a hemp farmer who also has a medical cannabis business, said she closed her account because her small business can’t afford $6,000 a year just for banking. She said her hemp account was also closed because while it’s still a federally legal business, the bank deemed it was “too risky.”
“It is a challenge to purchase things for the business online. To do that I have to get a CashApp card that I transfer cash into … and it was challenging for some of our contractors that needed to show evidence of the payments that they’ve been getting from us, so we had to sign an affidavit.”
Medical cannabis operators have a harder time accessing banking than recreational operators because many institutions are even more hesitant to work with the less-regulated medical market.
“It’s very expensive to have a bank account,” Hayes said, but “it’s also dangerous to not have a bank account if you’re running around with cash.”
A FEDERAL FIX?
The Maine Bankers Association, which submitted written testimony neither in favor of nor against the bill, said federal action is the only way to solve the problem.
In 2021, the government updated its interpretation of the 2014 Financial Crimes Enforcement Network guidance, requiring banks and credit unions to keep extensive records and report data about cannabis-related businesses on a near-constant basis. Businesses are required to have a sales/deposit validation system in place and to report specific information about investors and vendors.
The financial institutions are also required to submit a Suspicious Activity Report to the network at least every six months detailing deposits, withdrawals, transfers and more, regardless of whether the business complies with state law.
That’s where the Secure and Fair Enforcement Regulation (SAFER) Banking Act comes in.
This federal legislation, which has seen several iterations since it was first introduced in 2013, would prohibit U.S. regulators from prosecuting financial institutions that provide banking services to state-sanctioned and regulated businesses or associated businesses. Banks would still need to comply with Financial Crimes Enforcement Network guidance, but as more states and the government adapt to legalized cannabis policies, it could be streamlined.
Greg Olson, the deputy state treasurer, urged the committee to support the federal legislation, which he expects Congress to take up again this year.
But Grohoski, who introduced the almost identical bill in the previous legislative session, isn’t convinced.
“There is optimism that a federal fix is on the horizon, but I would just tell you that when I worked on this bill two years ago, that exact optimism was out there,” she said. “I’m not yet convinced that we should sit around and wait for the federal government to solve our problems.”
