Access to traditional banking resources is one of the most significant roadblocks affecting the medical marijuana industry. Businesses in some states have gained traction in changing this barrier. However, upcoming commercial medical marijuana businesses in Michigan are largely predicting to remain unbanked when licenses are issued. The state is proactively working towards possible solutions. However in the mean time businesses struggle to find trustworthy and reliable marijuana banking options.
In all other aspects, commercial licensees will need to look and act the part of a legitimately ran business. This includes full inventory tracking, business record keeping, and a highly-regulated process and compliance environment to follow. Making the situation more cumbersome (but not impossible), is the fact that banking is rarely an option for these types of businesses. Traditional cash and payment tracking structures are not available. Instead, most tracking is manual. Manual tracking can leave room for errors or incompleteness.
In December 2017, the Michigan Department of Insurance and Financial Services (DIFS) issued a letter to the Board of Directors and Management of Michigan State-Charted Credit Unions regarding providing financial services to the medical marijuana industry. The letter begins with informing the Board that a formal decision process must be followed for credit unions deciding whether or not to offer services to marijuana related businesses. The letter states “Even a determination to not provide such services must be a deliberate board decision through the process outline […]1”.
This means that a Michigan credit union must now go through a due diligence process to evaluate whether they should work with businesses in the industry or not. They cannot just say “no” without going through the process. See the full letter here. 1http://www.michigan.gov/documents/difs/OCU_Letter_2017-CU-03_608964_7.pdf
Historically, many credit unions have not been open to doing business with medical cannabis businesses.
Even though guidance was first released in 2014 by FinCen to credit unions, the risks and additional compliance processes the financial institution would need to follow, even just to see if banking with a marijuana business was simply an option, were generally too resource consuming to consider.
The DIFS letter in effect now prevents credit unions from automatically ‘discriminating’ against state licensed medical cannabis businesses that are otherwise in compliance. The letter also references the 2008 MMMA and includes individuals operating under these laws.
The letter also provides guidance to credit unions on evaluating whether the institution will offer services to the industry. The good news is that if they are required to go through a fully documented decision making process anyway, this will be one less reason for the institution to continue to reject offering services to a medical marijuana business.
How Can You Effectively Approach a Potential Credit Union Banking Partner?
From this Accountant’s perspective, make sure your business has its record keeping and accounting plans and procedures in order. Accurate business financial information is extremely important to banks, credit unions, and other financial institutions. Traditionally, financial institution partners often require annual audits of businesses and their financial accounting records. This is regardless of the business’s industry. The business has a financial responsibility to the credit union in the sense of “accuracy”. In return, the banking partner often requires an independent financial audit. An audit can help ensure financial records are complete and accurate.
Having a thorough accounting process in place or in your business plan can help show your commitment to keeping good financial records. Approach the credit union or bank as a business partner, similar to an investor. The financial institution will be concerned with the accuracy of your financial information. Another concern is how your business intends to maintain this accuracy and comply with all financial requirements.
Work with a CPA and professional bookkeeper who specializes in the medical cannabis industry to ensure these expectations are met. To demonstrate that you are serious about proper accounting, one option is to present formal business financial projection statements. These include a full balance sheet, income statement, and statement of cash flows prepared by a CPA. Include also any financial record keeping plans and CPA attested information submitted with the license application.
The letter goes on to reference the Cole Memo, which, even more recently, was rescinded by the U.S Attorney General. The letter provides some clarity to the confusion and explains how the Cole Memo was never law to begin with. Instead, the letter was only guidance on how banking institutions can comply with FinCen requirements.
Reading through the letter, one gains a perspective of all the additional procedures a financial institution must follow in order to work with a cannabis business.
Understanding the hurdles they must overcome can help provide opportunities to work with the credit union. Your business plan should include procedures to help ensure compliance requirements are met.
Expect too that the financial institution may also need to hire additional employees. At the least they will need to provide specialized training in order to offer services to the medical marijuana industry. Approached correctly, a credit union or bank may see this an opportunity for job creation. Opportunities also include increased revenue streams, and modern, forward thinking service offerings.
Michigan is proving its commitment to moving forward with the medical marijuana industry. The state is fostering an approach designed to create a legitimate business environment, one that will significantly impact the state’s economy.
The further we get into 2018, the more likely that traditional banking options will become available to Michigan’s medical marijuana businesses. Be ready to do business with them!
LC Solutions Michigan PLLC
January 5, 2018