People’s Credit Union CEO and President Sean Daly says major credit card companies and financial institutions remain cautious about entering the legal cannabis industry, which is projected to reach $40 billion this year.
Some credit unions, on the other hand, smell opportunity.
PCU has issued a number of commercial loans to Rhode Island and Massachusetts cannabis companies but has been mostly limited to providing business accounts and payment processing services.
It has created a team dedicated to handling these accounts and the extra regulatory scrutiny, getting in on the ground floor with the hope this will position the credit union well if and when the recreational use of cannabis becomes legal on a federal level.
“We hope there is a recognition with our customers that we were there in the beginning,” Daly said.
Spencer Blier, CEO and founder of cannabis cultivator Mammoth Inc., has seen Rhode Island’s marijuana culture evolve from an outlaw’s domain to medicine to legitimate enterprises.
Despite having been a medical cannabis cultivator for seven years, he was denied a home mortgage from several institutions with whom he had been banking well before he secured his marijuana license.
“They watched me start Mammoth,” he said. “I was paying taxes and had two years of documented income. I had a personal accountant.”
Greenwood Credit Union eventually approved a mortgage for Blier last year. His experience is just one example of the current regulatory framework defined by the federal government’s unwillingness to legalize cannabis.
It is likely that local banking institutions are not going to sit on the sidelines over the long term, watching potential profits be missed. Blier says some regional banks have recently reached out to him to say they are “reevaluating” their lending rules.
But one necessity in any commercial market is the unfettered movement of money from customer to business, or from business to vendor, allowing operators to grow and expand like other types of businesses.
Matthew Touchette, spokesperson for the R.I. Cannabis Control Commission, says state law doesn’t prohibit the use of credit cards. The only financial requirement is confirmation of a secured deposit banking account prior to approval or renewal of a license to operate.
But Touchette acknowledges the hurdles.
“Access to traditional bank loans and financing is a challenge for cannabis retailers and potential social equity candidates as long as cannabis remains illegal at the federal level,” he said.
The four major credit card processors – Visa Inc., Mastercard Inc., Discover Financial Services and American Express Co. – prohibited purchasing illegal products and services on their networks, including marijuana because it’s illegal under federal law. Mastercard won’t even allow debit payments.
But some of the Rhode Island dispensaries use workarounds so their customers can use credit cards, such as third-party payment processors that may charge additional transaction fees. Indeed, technology has helped somewhat in leveling the playing field, Blier says, allowing for other workarounds.
“Cashless ATMs,” payment terminals that allow customers to make purchases using a debit card like they would if they were using an ATM to withdraw cash, were an option but many ATM processors have turned off that option because of legal concerns.
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RISK ADVERSE: Gary Vierra, senior vice president and chief risk officer at BayCoast Bank, says the bank has been working with cannabis-related businesses but has kept the portfolio small to limit potential problems.
PBN FILE PHOTO/MICHAEL SALERNO[/caption]
Gary Vierra, senior vice president and chief risk officer at Swansea-based BayCoast Bank, says when it comes to credit cards, the industry is still wary to involve itself as long as it’s federally prohibited.
“Those transactions still have to go through the exchange,” he said.
The bank has been working in the cannabis industry since 2018 and now has about 25 cannabis business customers, mostly providing traditional services such as business accounts, online banking and mobile deposits.
Cannabis clients make up less than 3% of BayCoast’s loan portfolio, said Vierra, who supports federal legalization.
Even though federal regulators so far looked the other way on cannabis-related lending, BayCoast has stopped issuing new loans to cannabis operators indefinitely because the bank wants to limit its involvement in cannabis businesses.
“We have kept our portfolio small because of the risks from federal prohibition,” Vierra said. “There are many regulations to follow and much more oversight. You need to make sure cash coming in is not from illicit sources like money launderers and terrorist organizations.”
If and when cannabis is legalized nationally, Vierra says the many commercial obstacles will be removed, allowing for things such as interstate transportation, corporate investment and more-palatable tax incentives.
Erine Lewis, People’s Credit Union risk manager, says that as of now, compliance is already labor intensive. The credit union provides reports on cannabis clients to regulators every 90 days on everything “from front-line operations to the grow to the harvests to the testing.
“It takes a lot of due diligence,” she said. “As we’ve continued to evolve in this space, we have looked to make sure we have built core competency with the team so we are able to generate more deposits.”
Joseph Picuris, CEO of Mother Earth Wellness Inc. in Pawtucket, banks with People’s Credit Union and is using third-party vendors to process credit card transactions. “You can use a credit card and it charges a fee. It’s a workaround,” he said. “I don’t think many of the credit card companies realize it.”
Asked if he ever encounters customers agitated by the payment issues, Picuris says his clientele is easygoing for the most part. “They’ll work with you,” he said. “You might have one customer you tell to download an app and they get a little anxious about that.”
Industry observers say legalization by the federal government would go a long way to normalizing the industry and opening it for more banking and credit card services.
“Once it becomes legal, it will probably be just like any other business,” Daly said.