Arizona’s marijuana sales could exceed $1 billion by 2023 — but don’t take that to the bank.
Marijuana-related businesses, or MRBs, have historically been shut out of traditional banking. MRBs are profitable, often wildly so, but few banks want to assume the risks that come with providing financial services to an industry that revolves around products that remain federally illegal.
It's a problem that's been around since Colorado and Washington legalized recreational marijuana nearly a decade ago. But times have changed since then, and with 36 states legalizing medical marijuana and 17 allowing adult recreational use – and protective federal legislation called the SAFE Banking Act currently making its way through congress – more financial institutions seem to be warming up to the idea of working with MRBs.
In Arizona, two banks, one accounting firm, and one digital banking platform now offer financial services to MRBs. But it's been a long road.
“From the beginning, because it’s marijuana, it was a suspect industry," says Ross Dietrich, managing partner at Price Kong & Co., a Phoenix-based firm that’s provided accounting services for MRBs since 2011. “It being a cash business for the most part adds audit risk for us as internal controllers for the client. Even our bankers didn’t like the fact that we were getting money from MRBs.”
Republic Bank of Arizona began working with marijuana-related businesses in 2020 and is one of the two banks in the state that serves MRB clients. (The other is First Fidelity, which began banking with cannabis companies in 2016 and also operates in Oklahoma.)
“We did not go into this lightly,” says Brian Ruisinger, president and CEO of Republic Bank of Arizona. “We met with our attorneys, our insurance agents, our auditors, and ultimately, our regulators. And they said… ‘If you build a program that has policies, procedures and risk mitigation that’s satisfactory, we will look at it as a high-risk business within your entire business profile.’”
Frank Smith, Republic Bank of Arizona’s senior vice president of operations, constructed the compliance models for the 15 licensed MRBs on its rolls.
“Typically when I meet with an applicant, one of the first things I tell them is we request a lot from our clients,” Smith says. “I developed several sets of reports that I need in order to maintain compliance from the retail side and the cultivation side, as well as looking at your financials at a higher level on a consistent basis.”
There's a silver lining in it for these financial institutions, though. Because of the risks, compliance requirements, and rigorous audits inherent in providing financial services to MRBs, banks and firms that do take on cannabis-based companies can command high fees and demand transparency. There's also, in theory, a certain level of goodwill on the other end.
“We expect our clients to acknowledge the risk we took and the support that we gave to the industry when others wouldn’t,” Ruisinger says. “Once it’s safe to go into the water, it doesn’t take a real bold move to get into it.”
But banks aren’t the only solution for Arizona MRBs these days. Sarah Wessel founded ALTA Financial two years ago as part of Arizona’s FinTech Sandbox program. The business model, which Wessel describes as “like Venmo for businesses,” is a B2B platform dealing in digital tokens that can be exchanged for dollars. Wessel won’t divulge the number of MRBs currently using ALTA, but says the company is “finally starting to gain some traction” and “everyone is excited and looking forward to having another option here.”
“Even as laws loosen and change or evolve in any way, digital banking is absolutely the way of the future,” Wessel says.
Banking options could proliferate if the U.S. Senate approves the SAFE Banking Act, which would prohibit federal penalties for financial institutions that provide services to licensed MRBs. In April, the bill passed 321-101 in the House and awaits a Senate vote.
Paula Durham, associate director with global consulting firm JS Held, says the current lack of banking options drives businesses underground and creates a lack of transparency.
“If banking were to open up, you would have a lot more traceability of the cash,” she says. “You’d know where the money came from, where it went, and money laundering would be much more difficult. It just makes so much more sense to get it out into the light.”
In the meantime, the water’s definitely getting warmer, if not safer.
"I think it’s [marijuana] getting a lot of credibility as an industry these days, partly because of the cultural acceptance across the country,” Dietrich says. “I don’t think the industry is going anywhere, and everybody just needs to know this isn’t any different than any other business. It’s got a stigma, but that is quickly going away.”