By Jim Davis
The (Everett) Herald Business Journal Editor
LAKE STEVENS — Reed Evans called several banks looking to open an account for Cannablyss, his family’s recreational marijuana business and the only pot retail store in Lake Stevens.
He had no luck. He got his name on a waiting list at Salal Credit Union in Seattle, but most financial institutions are shying away from doing business with the still young industry.
“We pay most bills in cash, we literally drive to the PUD and give them a couple of hundred dollars and we drive to our landlord to pay the rent,” Evans said.
His family makes sure to drop money into a safe so they don’t have a large amount of cash on hand. And they’ve installed an ATM machine for their customers at the store at 2705 Hartford Ave.
It’s inconvenient and inefficient — not to mention the concerns about safety. But that’s the situation where marijuana is legal in the state, but illegal federally.
The Justice Department has made clear it won’t interfere with businesses in states where marijuana’s sale or use has been made legal so long as everyone adheres to state law and the industry is taxed and regulated. And the Treasury and Justice departments earlier this year announced formal guidance for banks.
There’s enough uncertainty, though, that most bankers are unwilling to expose themselves and their shareholders to the risk if anything goes wrong. Federal lawmakers or authorities need to create language without equivocation that banks can do business with the industry, said Mark MacDonald, president and CEO of Community Bankers of Washington, a group that represents independent community banks in the state.
Otherwise, his members would worry about a rogue regulator coming after them for failing to abide by the letter of the law.
“I’ve been told by some of the regulators that they would never do that,” MacDonald said. “Well I say put it in writing, give my guys and gals something to put their hat on.”
Still, some banks and credit unions are working with marijuana business owners — usually charging a premium to open and keep open an account.
“I’ve got seven banks that are banking the marijuana industry but they don’t want me to go out and publicize their names,” MacDonald said.
He said all of the banks that he knows are doing business with growers and processors. He said that he knows of no banks that are acknowledging doing business with retailers. Bankers are required to know their customers and, in some cases, know their customer’s customers.
Some bankers feel they can trust a grower or a processor, because they can do due diligence on the business and the retail shops they’re working with. They can’t do due diligence on every person who walks through the door of a shop.
That’s a concern for Mark Duffy, president and CEO of Mountain Pacific Bank in Everett.
“When it comes to the retailer, we don’t know who their customer is necessarily nor do we want to take the risk,” Duffy said.
He said his bank has been turning away people in the industry who have wanted to work with them. He’s even been approached by people he knows in the community.
“We’re very small and we’re taking a wait-and-see attitude,” Duffy said. “We don’t want to be a first one.”
He said the assurances by the Justice and Treasury departments just aren’t enough yet.
“I don’t think it has been solved and made clear by the federal regulators,” Duffy said. “And I think that’s why bankers are being cautious.”
Scott Jarvis, director of the Department of Financial Institutions, agrees that banking for the pot industry is an unsettled issue. He said the state is continuing to work with federal authorities to try to resolve the problem. And he said he expects the federal Financial Crimes Enforcement Network will come out soon with a new memo specifically on lending to the pot industry.
But he understands bankers’ concern about the risk.
“It’s still a schedule 1 drug under federal law, so banks have to be very careful,” Jarvis said.
That’s the concern for Heritage Bank.
“That’s what we do, we follow the rules,” said Bryan McDonald, chief lending officer for Heritage Bank, which merged with Whidbey Island Bank.
Heritage Bank also has turned away business from the marijuana industry. Heritage CEO Brian Vance said he understands the quandary these business owners face.
“We’re not saying we’re for or against the marijuana industry,” he said.
But he said there’s just too much confusion about the potential consequences for banking with the industry. He thinks the situation will likely come to a head in the near future.
“When I say it will sort itself out, I think the possibility is that more states will pass marijuana laws so the federal government will have to deal with this more specifically,” he said.
Some of the pot businesses may already be using banks or credit unions without the financial institutions fully understanding what’s going on, McDonald said.
That’s the understanding of Evans, whose family owns Cannablyss. While some pot retailers are taking debit cards, Evans said he’s heard that they’re using cashless ATMs and depositing money into their personal accounts without telling the banks.
“I’ve heard of people just using personal bank accounts and hoping they don’t get flagged just so they have some place to put their money,” he said.
His family has attempted to be on the up-and-up with their business. When he approached banks, he always told them that they were opening a retail marijuana shop.
His parents, Bob and Denise Evans, got the license. Reed Evans and his wife, Karn, work at the store along with his sister, Jaeda Evans. His parents were against marijuana use until Bob Evans suffered from cancer. Denise Evans went out to get medicinal marijuana for her husband.
“When she saw that people can use it medically she got excited about it,” Reed Evans said.
When voters made recreational marijuana legal with Initiative 502, his mom actually suggested that the family apply for one of the retail businesses. The family who all live near each other in Lake Stevens did the research and applied on the last day possible to get a license. They understood that the industry would evolve.
“We pretty much assumed it would be a cash business in the beginning,” Evans said. “We’re OK with that. We’re going to plug away until the rules changes.”