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Anecdotal Perspectives on Banking and

Institutional Prejudice

Towards the Legal Cannabis Industry

An important component of the US banking industry’s (as well as other corporate institutions’) unwillingness to provide service to or transact with the legal cannabis industry may be institutional prejudice. Bankers assert that their reticence is based upon fear of losing FDIC or NCUA insurance, federal prosecution and/or excessive costs but it may be more based upon their apparently irrational unwillingness to become well informed on the risks and opportunities, combined with an institutional ‘herd’ mentality that governs their decision-making.

This at least partially explains why traditional approaches of presenting the merits seem, as often as not to fall on deaf ears.

Some of my recent related observations and experience bolster this perspective:

  • If the trade associations, business conventions, continuing education, federal and state regulations and invasive examinations are any indication, clearly financial institutions invest considerable resources in many levels of compliance, reporting, detection, protection & defense, anti-money laundering, know-your-customer, fraud prevention, cyber-hacking & attacks, anti-corruption and the like. They are continuously improving, revising and augmenting their systems and practices to keep pace with emerging and ongoing threats, not to mention resources deployed for physical security. That banking MMJ business may require some additional resources and practices is really a pretext for their unwillingness to do so.

  • Most of the 95% of Nevada financial institutions contacted last month regarding the MJ industry were not even interested in learning anything more about the risks and opportunities of maintaining depository accounts let alone willing to consider opening such accounts

  • When FinCen issued their 2014 guidance, the American Bankers Association (ABA) immediately discounted it as insufficient in providing financial institutions with adequate security, protection and/or indemnification. Since then, neither they nor most of their members have shown any interest in further learning or pursuing greater understanding of the actual risks and rewards of banking the industry. It appears that, absent other factors, nothing short of Federal de-scheduling (including Congressional action) will ultimately move the US banking industry.

  • At the WSJ a couple of years ago, one of the big bosses, for ‘some idiosyncratic reason’, pronounced he was sick of marijuana stories, and there haven't been many since.

  • In Dec 2016 as a NY real estate broker, I associated myself with a large national agency based in NYC, intending to build a practice specializing in investment in cannabis-friendly commercial real estate. However shortly thereafter I was advised that upper management would not permit any marketing or transactions relating to this legal industry, and further was even prohibited from informally presenting opportunities to any colleagues or their clients.

It is advisable to be aware of this likely institutional prejudice when negotiating with US financial institutions (as well as other corporate US institutions).            I’ve often been most successful when I overcome this objection first before attempting any substantive discussions on the merits.