September 18, 2019

When a Bank is a Bank

With the marijuana business license application window open in Missouri many of the applicants are developing their accounting and security policies to present in the application. Typically these startups have been cash intensive and under-banked. Although Missouri is the 33rd State to legalize plant based medicine, banking is regional and little knowledge can be leveraged from the previous States' experiences.

Technically banks are able to accept deposits and open accounts for these businesses, however compliance with federal and state guidance is time consuming and expensive. This leads many banks to elect not to serve the space. In addition banks are threatened by key vendors to end relationships and fear current customer relations may be strained. Therefore, banks serving marijuana businesses maintain a low profile and do not promote their industry friendly services. This makes it hard for applicants to find a bank partner.

New alternative banking startups have entered the market. They offer banking services, however banking in our fintech world has a broad meaning. Banking in America is more than having your sales receipts deposited and vendors paid. In America we want our funds insured and liquid. Our money should be available immediately, in cash if we wish.

Often these new service providers offer an agent/principal relationship, not the common bank/depositor relationship. The differences are important. Many agreements entered give the agent (them) control of the principal's (you) account. The account is in the name of the agent. They are given privelages to the same extent as if the agent were the legal owner of the account (you). The principal agrees it has no rights to give instructions or to take any actions with regards to the account.

The Bank is released of liability for and is indemnified by both the agent and principal against any loss or expense honoring the agreement. This is important given funds of various principals are often co mingled into a single account by the agent. The principal, you the business owner and capital investor gives up a lot in exchange for a glorified bill payment service and in addition are charged large monthly fees! Please read all service agreements carefully. Remember the devil is in the details.

Do not settle for such a one sided costly solution. Continue to shop for normalized banking services. Progressive tech savy bankers are working with consultants, attorney's and regulators to provide services to the industry.

All parties are working on effective compliance manangment systems. This requires significant due diligence procedure, specific to the industry. These include but are not limited to monitoring account holders to determine they are not distrubiting to minors or diverting marijuana to the black market.

Account holders sales and receipts must be compared to those they are reporting and be consistent with local competitors. Establishing controls and implementing procedures is a difficult task for banks and credit unions. Marijuana related business should continue to search for a normalized banking relationship. While applications are being reviewed and scored continue to reach out to consultants, attorneys and trade associations for banks that will be serving plant based medicine businesses. Working directly with community banks or credit unions will always be preferred to an agency relationship with a bank. Please contact me at (314) 650-0646 if you would like more information.

Technically banks are able to accept deposits and open accounts for these businesses, however, compliance with federal and state guidance is time-consuming and expensive. This leads many banks to elect not to serve the space. In addition, banks are threatened by key vendors to end relationships and fear current customer relations may be strained. Therefore, banks serving marijuana businesses maintain a low profile and do not promote their industry-friendly services. This makes it hard for applicants to find a bank partner.

Originally posted on Linkedin.com by Avenir's Stan Rubbelke. Click here to view the original article.

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Copyright Avenir 2019. All Rights Reserved.