For cannabis startups in Vermont, banking barriers weigh heavily

As Vermont’s cannabis entrepreneurs prepare to apply for a license in the state’s new legal marketplace, one item on their to-do lists is proving hard to tick off: the bank account.

Since the plant is still federally illegal, most federally insured banks will not approach the area for fear of being penalized for money laundering. And after a breakdown of monthly fees Reportedly linked to cannabis accounts at the New England Federal Credit Union was posted on social media last week, industry professionals fear high costs and limited banking options will keep small businesses sidelined .

“Personally, I think it’s wear and tear. I mean, this is all just my opinion, but they don’t charge liquor stores for this, they don’t charge people who sell tobacco for it,” said Scott Sparks, owner of Vermont Hempicurean and Vermont Grow Barn in Brattleboro. “They certainly don’t charge it to people who sell opioids.”

Bill Smith, director of marketing and retail for the credit union, confirmed to Heady Vermont that the organization’s fees for cannabis accounts – classified as “marijuana-related businesses” in accordance with the language used by its Regulators – currently range from $200 to $2,500 per month depending on license type.

A screenshot of the New England Federal Credit Union’s cannabis banking fees was leaked in a Facebook post last week.

The fee is intended to help defray additional costs associated with serving cannabis businesses, such as expenses related to conducting risk assessments and meeting regulatory requirements. At this point, Smith said expected costs are difficult to predict and the credit union plans to adjust its fees as the true costs become clear.

“The [Bank Secrecy Act] oversight of these accounts and relationships is important,” Smith said. “And then just the money management itself, and we’re still working on how we’re going to manage the cash needs of these businesses, whether it’s money coming in or money going out.”

Smith took issue with comments on social media calling the fees a “profit”, noting that the bank adjusted the schedule to include reduced fees for the lowest tier of cultivators after receiving feedback from applicants.

Smith took issue with comments on social media calling the fees a “profit”, noting that the bank adjusted the schedule to include reduced fees for the lowest tier of cultivators after receiving feedback from applicants. The NEFCU also plans to drop its requirement that cannabis seekers sign a nondisclosure agreement to open an account, Smith said Wednesday.

“We serve these businesses because we believe they are legitimate at the state level and should have access to banking services,” Smith said. “And we are working hard to understand the requirements and the costs. Many financial institutions just said, ‘No, we don’t do that, period.’ »

So far, NEFCU is the only bank in Vermont actively opening accounts for adult cannabis customers. But VSECU, which currently serves all five medical dispensaries in the state, is expected to offer a second option to cannabis entrepreneurs in the near future.

VSECU plans to charge a monthly fee for cannabis accounts equal to 1.5% of the company’s total deposits, Huysman said.

According to Gregory Huysman, director of business loans and services, the credit union is preparing to open accounts for adult-use cannabis applicants soon, but only if they have state pre-qualification in hand. He said this requirement helps the bank ensure that potential members are ready to go through the licensing process.

Pre-qualification involves a criminal background check and review of company directors and controlling entities. As of Monday, the Cannabis Control Commission had received more than 650 pre-qualification applications, VTDigger reported.

“One thing we have to keep in mind as this market becomes legit is that there are still players who may not be completely legit,” Huysman said. “We just want to make sure we err on the side of caution because it would get us in a lot of trouble with our regulators if any of these people started using our bank.”

VSECU plans to charge a monthly fee for cannabis accounts equal to 1.5% of the company’s total monthly deposits, Huysman said, which the bank hopes will not be a barrier for small businesses because it is based on real income.

NEFCU and VSECU also have announced their intention to mergebut this process is not expected to be finalized until well into 2023. Until then, the two credit unions will maintain their separate policies, procedures and fee schedules.

NEFCU and VSECU also have announced their intention to mergebut that process isn’t expected to be finalized until well into 2023. Until then, the two credit unions will retain their separate policies, procedures and fee schedules, according to Huysman.

“As we grow in this market, this is a fee structure that we considered common in other markets, and one that we thought was fair for the members and fair and appropriate for the credit union” , Huysman said.

Kristyn Glennon, vice president and head of bank secrecy/anti-money laundering law for Bay Coast Bank in Massachusetts, said it’s not uncommon for banks in the state to charge fees for cannabis deposit accounts, whether fixed or percentage-based. Glennon declined to share details of Bay Coast Bank’s fee structure for cannabis-related businesses, but said it was tied to sales revenue.

“The more these fees and the more challenges we bring, the fewer producers we convert to the legal market.”
—Stephanie Waterman, White River Growpro

The biggest cost associated with servicing cannabis businesses has been the need for additional staff to handle customer onboarding, account monitoring and completing required regulatory reporting, Glennon said.

“We are performing increased due diligence on the business and the parties involved in that business,” she said. “We have monitoring that we do on what transactions come in and out of the account and where the funds go.”

Glennon said options for cannabis banking in Massachusetts are limited, much like in Vermont, which makes adequate staffing all the more important if banks are to meet demand.

What Sparks would like to see is more transparency about where the fees go. He is skeptical that a retail business would incur $2,000 in fees for a bank every month, and noted that 1.5% of a business’ monthly revenue could easily exceed that benchmark.

“…At the end of the day, they’re going to have a lot of money in their businesses, and why we’re being penalized for that bothers me a bit.”
—Scott Sparks, Vermont Bud Barn

“I guess in some sense I don’t mind paying a small fee. But at the end of the day, they’re going to have a lot of money flowing through their businesses, and why we’re being penalized for that kinda bothers me,” Sparks said.

And while advocates have been pushing for changes at the federal level, it seems unlikely to materialize any time soon. the Safe Banks Actwhich would prevent federal regulators from penalizing financial institutions that work with cannabis establishments, is stalled in the US Senate after passing the House last year.

“I see this as just a circumstance of the situation we find ourselves in right now with the friction between state law and federal law,” Huysman said. “And until that’s resolved, I think you’ll still see these kinds of additional fees applied to this industry to mitigate risk and ensure expenses are covered.”

“I see this as just a circumstance of the situation we find ourselves in right now with the friction between state law and federal law.”
—Gregory Huysman, VSECU

For Stephanie Waterman, co-owner of White River Grow Pro At White River Junction, the barriers to banking look like another form of discrimination and stigma, she said, that cannabis businesses face “at every turn.” She fears these barriers will result in an adult use market dominated by huge out-of-state corporations.

“What I hope the Vermont Legislature understands, and what I know the Cannabis Control Council understands, is that the more these fees and the more challenges we bring, the fewer growers we convert on the legal market,” Waterman said. “It just further perpetuates the underground market.”

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