Seven states so far have legalized cannabis for recreational use and medical marijuana is legal in 21 other states, but federally-funded banks cannot serve the needs of cannabis-related businesses, because it is still an illegal drug under federal law. Industry experts, however, contend that the banks have been allowing these businesses to deposit money or access some credit card services, on a “don’t ask, don’t tell” basis.
Established cannabis businesses have had long-term relationships with bankers, while newer entries to the industry are taking a multi-prong approach, so if one door closes they can go elsewhere, says Jim Fitzpatrick, founder and principal of Solutioneers, a consulting firm that provides compliance and land use services to cannabis firms.
Many cannabis-related operators conceal the true nature of their business in order to obtain banking services, says Matthew Karnes, founder of GreenWave Advisors, a cannabis research and advisory firm.
Meanwhile, real estate investors focused on providing space for cannabis operators have launched REIT—some public and some private—to raise capital, amassing $478 million so far, according to New Frontier Data, an analytics company focused on the cannabis business, and Viridian Capital Partners, a strategic advisory firm.
But with so much money involved, some banks are starting to move forward in implementing compliance technologies to monitor customers’ business operations to ensure compliance with state cannabis laws, according to Karnes.
Then last week U.S. Attorney General Jeff Sessions announced that he was cracking down on the cannabis industry by rescinding the Obama Administration Cole memorandum, which had protected cannabis-related businesses in states that had legalized pot in some form. This move by Sessions gave federal prosecutors wider discretion in enforcing federal drug law, but was ultimately aimed at slowing investment in the pot industry, which is exactly what is happening.
“There has been no indication for