File photo by Glenn Russell/VTDigger
With some applications for state approval now open, recreational cannabis businesses are one step closer to operating in Vermont.
Yet, despite the approval of regulators, prospective business owners face a lack of available banking options.
Last month, the state began soliciting pre-qualification applications, which allow regulators to judge whether an applicant can open a business based on their criminal history. The Cannabis Control Board began approving those applications on Monday.
The state also opened up some license applications last week, including for tier 1 cultivators — growers working with less than 1,000 square feet.
As of Monday, the board had received 656 pre-qualification applications, according to James Pepper, the chair of the Cannabis Control Board. That total includes more than 80 each for both manufacturers and retailers.
Pepper also reported that the board had received 10 fully submitted licensing applications and more than 100 partially completed applications.
The pre-qualification process can provide peace of mind for prospective business owners, said Dave Silberman, a Middlebury attorney and drug policy advocate who works with cannabis business clients. That’s especially true for “people who have some hair on their criminal record, let’s say, or who’ve been involved in a bunch of civil lawsuits, or have had license administrative issues in the past,” he said.
Yet while the Cannabis Control Board moves ahead with licensing and pre-approval, many are struggling to find reasonable banking options.
Currently, New England Federal Credit Union is the only financial institution that has opened accounts with prospective recreational cannabis businesses in Vermont. But some of its first clients are frustrated with the process — and fees — associated with the credit union’s accounts.
Documents obtained by VTDigger reveal the high fees the credit union charges to open up a cannabis business bank account.
For would-be clients to even see New England Federal Credit Union’s cannabis banking application and information, the credit union has been requiring them to sign a nondisclosure agreement — an unusual step, according to Silberman.
Tier 1 cultivators — for whom licensing applications are now open — would be charged $200 per month to have an account. Retailers would be charged $2,000 every month, wholesalers $1,500, and both manufacturers and the largest cultivators $1,000 per month.
A publicly available pricing schedule for regular New England Federal Credit Union business accounts shows far lower fees. Some accounts appear to have monthly fees of $5 or $6, while others have no monthly fees at all.
Asked about the proposed fees and the NDA requirement, the credit union suggested it may revise both policies.
“We do not yet fully understand the costs and requirements of offering these accounts, as these will be a new type of business for us and with very different and complex regulations,” said Bill Smith, the credit union’s chief marketing and retail officer.
Because New England Federal Credit Union has been the only company in the sector, the credit union can effectively set whatever conditions it wants.
VSECU, formerly called the Vermont State Employees Credit Union, currently provides banking and loan services to the state’s five medical dispensaries. The credit union, which recently announced its intention to merge with New England Federal Credit Union, plans to enter the recreational cannabis market but has yet to sign up its first customers.
“We have been preparing to serve the adult-use cannabis market in the same manner as our medical dispensaries,” said Greg Huysman, director of business lending and services at VSECU. Huysman said that, once businesses receive prequalification, “they can approach VSECU and we will begin the process of opening a new membership.”
Asked about the dearth of banks offering retail cannabis business accounts, Mike Pieciak, commissioner of Vermont’s Department of Financial Regulation, explained the few means the state has to encourage more financial services.
He said the state will work with any company to “develop a robust compliance program” that falls in line with federal regulations.
According to Pieciak, states use as a touchstone the so-called Cole Memorandum, an Obama-era document that explained that the federal government would not prioritize punishing businesses involved in marijuana so long as those businesses followed state law.
Vermont has worked closely with VSECU to ensure the credit union complies with the Cole Memorandum, Pieciak said.
Ultimately, though, banks must decide for themselves if it’s worth it for them to work with cannabis businesses. “They have to make the decision, the fundamental risk analysis, that they want to operate in the space, and that’s a business decision for them — we can’t really control that,” Pieciak said.
There are costs uniquely associated with working with cannabis businesses. Depository institutions must file Suspicious Activity Reports for transactions related to cannabis businesses. That process has associated administrative costs.
Silberman, the cannabis lawyer, hopes that Vermont’s pre-qualification process will assuage the fear of banks thinking about working with pot shops and growers.
“I think it’s going to be very helpful for folks to have pre-qualification to be able to go and talk with local banks. Banks have been really reluctant to talk with anyone in the cannabis industry,” Silberman said.
The federal prohibition against marijuana use or production leaves banks liable for penalties if they work with cannabis businesses. As a result, advocates are pushing Congress to pass the SAFE Banking Act, a bill that would allow legal cannabis businesses to access banks and credit cards without the federal government penalizing the financial institutions. The bill has passed the House but remains stalled in the Senate.
Pieciak called the SAFE Act a “no-brainer.”
“(Many) states have some form of legal cannabis markets, whether adult-use or medical. Not to support that infrastructure with financial services is, you know, it’s just not good policy,” he said.
Clarification: An earlier version of this story was unclear on VSECU’s current offerings to prospective recreational cannabis businesses.