Dank of America: Why getting dropped by a bank is seen as ‘a rite of passage’ for cannabis retailers

Most major banks snub cannabis businesses. This Valley Bank executive seeks them out.
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New York League of Independent Bankers

· 4 min read

New laws allow recreational cannabis sales in more than 20 states, but it remains illegal under federal law, making starting a retail cannabis business difficult. This is Part 2 of a series. Part 1 featured Gotham, a cannabis “concept store” opening in New York in April.

Licensed cannabis retail stores are beginning to open in New York, but because they’re required to sell products sourced only from the state, that supply chain had to get a headstart a year ago.

In 2022, many of those cannabis producers got good news: The state announced their license applications had been approved, posting their business names online.

Then they heard from their banks.

“I got a huge wave of calls because all of them got kicked out,” Peter Su, SVP of Green Check Verified, a software company that helps banks run cannabis programs, told Retail Brew. “Like 30 times, ‘Pete, I got kicked out of my bank because the state released the names.’”

Getting dropped by a bank is “sort of a rite of passage,” Lauren Rudick, managing principal at Rudick Law Group, a New York-based firm that provides legal services to cannabis companies, told us. “You’re not really in the cannabis industry until you lose at least one banking relationship.”

Just 10% of banks and 5% of credit unions provide banking services to cannabis businesses, according to Reuters.

But not all bankers reach for the 10-foot pole at the first whiff of cannabis. Some don’t just accept business from cannabis retail stores and their suppliers—they court it.

“It’s very rare that a business line originates from the risk side of the house,” Rawls told Retail Brew. “Usually it’s an idea that somebody on the sales side has to generate new business,” and then “there’s a lot of gnashing of teeth” from the risk department.

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What the risk department saw in cannabis was “an emerging industry that had legitimate needs in place for banking,” Rawls said.

With cannabis, the bank has pursued business beyond the four states where it has branches (New York, New Jersey, Florida, and Alabama), and now serves cannabis-related account holders in 26 states, with deposits valued at “several hundred million,” Rawls said.

And it turns out that for Valley’s cannabis clients, even if there’s a branch nearby, they can’t make cash deposits there.

Pipe dreams: “The biggest difference” for cannabis retail banking clients is that Valley Bank doesn’t permit them to make typical transactions at branches such as making a cash deposit, Rawls said.

It’s just one way that the bank keeps its cannabis business separate from “federally legal business,” Rawls said. Valley works with cannabis stores—which are cash-intensive since major credit-card companies don’t accept cannabis transactions—to set up regular pickups from armored vehicles that deliver them to a Federal Reserve facility, which deposits the funds into the Valley account.

Su said there are legitimate reasons for banks to take legal precautions to keep cannabis money separate, but added that at the dawn of legalization, some were also concerned about decorum.

“In the early days, some banks were worried that [the cash] would smell funny, which is not true,” Su said with a laugh. “It was the stigma of, ‘There’s going to be a stoner pulling up in the mystery van and a waft of smoke is gonna follow him into the branch.’”

For his part, Rawls said that when he tells friends and relatives that he’s heading to a cannabis conference, “you’ll get the wisecrack,” but he views the businesses like any other.

“Valley is a bank that looks to provide the means for businesses and people in our communities to succeed,” he said. “These are legitimate businesses that are providing goods and services in the communities that they support.”

Next time: Why are there 1,400 illegal cannabis stores in New York?—AAN

Retail news that keeps industry pros in the know

Retail Brew delivers the latest retail industry news and insights surrounding marketing, DTC, and e-commerce to keep leaders and decision-makers up to date.