If you’ve ever used a debit card at a Maryland dispensary, it’s more than likely that the company has a bank account opened with one of the three banks in Maryland that services the cannabis industry: Severn Bank, Bulldog Federal Credit Union, or the newest addition—CFG Bank.
Out of more than 80 different banks in Maryland, those three are the only ones that will service the state’s medical cannabis businesses. That’s because cannabis is still federally illegal and as a result, cannabis companies are typically denied traditional banking services. Financial institutions who service the cannabis industry are technically holding what the federal government still considers to be “drug money.”
Severn Bank in Annapolis was the first in Maryland to venture into the cannabis industry when sales began in 2017. It was joined by Gaithersburg-based Bulldog Federal Credit Union in 2018. Then, just last month, Baltimore’s CFG Bank became the third bank to announce they are servicing Maryland cannabis businesses.
Cannabis companies with bank accounts can accept debit cards, purchase products from other businesses via wire transfer and pay their employees directly from a bank account—services accessible to almost every other legal industry in the U.S.
In an interview with the Baltimore Business Journal in 2018, the president of Bulldog Federal Credit Union said “these people are business owners just like anybody else…they’re businesses that are just trying to serve a need in Maryland. So we want to do the same for them.”
Severn, Bulldog and CFG are all willing to open bank accounts for Maryland’s cannabis businesses, but not before charging hefty fees to accommodate risk incurred by the bank and the additional compliance legwork.
Severn Bank charges cannabis businesses $3,000 to open an account and $1,750 monthly, whereas Bulldog Federal Credit Union in Gaithersburg charges $2,500 initially and $1,500 monthly. That’s a $20,500 per year expense, at least, just to open and operate a bank account.
For this reason, 70% of cannabis businesses in the U.S. are still cash-only, and while the number of banks willing to service cannabis companies is increasing, the vast majority of banks won’t budge until cannabis is legal.
But there’s a lot of money to be made by banks who choose to service Maryland’s cannabis industry, especially considering the state’s cannabis sales hit $1 billion within three years of medical cannabis dispensaries being operational.
In just its first year of serving Maryland’s medical cannabis industry in 2017, Severn Bank reported $19.2 million in cannabis deposits or 3.2% of the bank’s total deposits. Then, just last week, Curio Wellness announced the closing of a $26 million mortgage with Severn Bank as its lead finance partner to expand its Maryland cultivation facilities and other improvements to Curio’s Maryland operations.
Relationships with the cannabis industry could be particularly profitable for financial institutions, especially once cannabis is federally decriminalized. For banks, there’s a lot of money to be made…and for cannabis businesses, there’s a lot to be saved.
If Congress passes the Secure and Fair Enforcement Banking Act (The SAFE Act), federal law would prohibit regulators from penalizing financial institutions for the sole reason it does business with a cannabis company. Passing this act would remove the need for banks to charge hefty risk fees to cannabis companies and reduce the overall price of running a cannabis business bank account.
This bill would also grant cannabis entrepreneurs access to things like small business loans, mortgages, credit lines and other banking services that are necessary for starting a business if you don’t already have access to large pools of existing capital.
Not to mention, cannabis companies would no longer need to pay for the additional security measures and armored transportation required to run an all-cash business. Plus, dispensaries would no longer be required to store the large sums of cash that make them such convenient robbery targets.
The U.S. House of Representatives passed the SAFE Banking Act earlier this year and it now awaits its fate in the Senate where it is still unclear whether the Democrat-controlled senate will vote on the bill this year. It was first introduced and passed by the House in 2019 but was dead upon arrival to what was then a Republican-controlled senate.
Passage of the SAFE Banking Act would ultimately make Maryland’s cannabis industry more equitable by removing many of the expensive barriers to entry for small business owners and create a more level playing field.
The only feasible alternative to passing this bill would be decriminalizing or fully legalizing cannabis at the federal level. Until then, Maryland’s cannabis businesses will have to make do with four options: Severn Bank, Bulldog Federal Credit Union, CFG Bank…or it’s cash only.