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Marijuana Companies Starting to Find Banks

Ben Jackson by Ben Jackson
April 27, 2016
in Analysts Coverage
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The nascent legal marijuana industry has had to do most of its business in cash because banks and credit unions did not want to hold the money of businesses that run afoul of federal law. Now, however, there are signs that this may be changing. The Associated Press reports that the number of financial institutions willing to hold deposits from marijuana dispensaries is growing.

Federal data show that the number of banks and credit unions across the country willing to handle pot money under Treasury Department guidelines issued two years ago has jumped from 51 in March 2014 to 301 last month.
Card acceptance is still an issue though.

Marijuana’s prohibition under federal law still presents a serious hurdle for pot-related businesses, which generally can’t accept credit or debit cards due to card companies’ fears about liability for money laundering or other offenses.

Many legal pot shops in Washington, Colorado and Oregon — the only states with legal recreational sales so far — and dispensaries in medical marijuana states keep ATMs on site to facilitate cash transactions.

Read the AP article here:

The industry continues to grow, however, and at least one company has been launched to help dispensaries navigate the financial services industry. The American Banker recently published a profile of Hypur.

If anyone can figure out how banks can serve marijuana and other cash-intensive businesses and stay out of trouble, it should be John Vardaman.

Until recently, Vardaman was an assistant deputy chief for policy in the asset forfeiture and money laundering division of the Department of Justice. He is now the general counsel of Hypur, a startup that offers technology to banks looking to work with marijuana dispensaries, check cashers, pawnshops and other industries that the mainstream financial system has treated as lepers.

Read the article here:

The future of this business depends on which way the election goes and what Congress and state governments decide to do. If there is an increasing liberalization of laws surrounding marijuana, then there may be a new payments business opportunity. However, financial service providers of all kinds will need to decide whether they want to go into the new area and what the risks are – legal, financial, and reputational. While some companies do quite well in sectors that others regard as fringe, providers should take care not to get sucked into a land rush for new business if it doesn’t fit their overall strategy.

Overview by Ben Jackson, Director, Prepaid Advisory Service at Mercator Advisory Group

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