New York’s first recreational cannabis sales started at the end of December, and hundreds of eager entrepreneurs are waiting to get in on the ground floor of the new billion-dollar industry.
But one of the toughest challenges these entrepreneurs will face is establishing a banking relationship. Most financial institutions turn customers away at the first mention of marijuana.
That’s the big problem that Sunmark Credit Union is looking to solve, as one of the few financial institutions in the Albany region that will work with cannabis companies.
The cannabis banking program at Sunmark is led by Jeff Miller, vice president of sales and business development for the credit union. Miller said Sunmark officially started the cannabis banking program 18 months ago and started to open what they’re calling “seedling accounts” five months ago.
The credit union offers checking and savings accounts to cannabis-related businesses and their employees.
“The term that we use all the time is ‘serving the underserved’ and this cannabis opportunity presented the chance for us to live out that action,” Miller said. “The cannabis industry was not served at all in banking. Anyone we talked to, they were unbelievably frustrated that they couldn’t even have the conversation with anybody in the banking world.”
Marijuana is legal in some form in 39 states, yet the federal government lists it alongside drugs like heroin and LSD, making it illegal to sell or possess. That puts any nationally chartered banks doing business with cannabis companies at risk for charges of money laundering or aiding and abetting a federal crime.
Without other options, many cannabis companies do business in cash, paying suppliers, employees and often taxes in thousands of bills. That puts these companies at a huge risk for robberies or employee fraud.
The risk is a little different for New York state-chartered banks and credit unions to participate in cannabis banking. New York will not punish any state-chartered bank or credit union that works with a medical or adult-use marijuana business as long as those banks are compliant with all other regulations.
Sunmark opened up its opportunity to work with these companies in 2020, when the 86-year-old institution converted from a federal-charted institution to a state-charted credit union. It also expanded Sunmark’s geography from which it can draw members to Westchester, Orange and Rockland counties.
Hudson Valley Credit Union, which has recently expanded into the Capital Region, also offers cannabis banking after switching to a state charter in 2019.
For financial institutions like Sunmark that do work with cannabis businesses, the government requires filing reports for every transaction, putting additional pressure and red tape on banks working in this industry.
“We have to know every dollar that’s coming in and out of the account,” Miller said. “We want to start slow and make sure that we’re doing things the correct way with our risk team. It is a lot more regulation than a regular bank or a regular account.”
The demand for Sunmark’s services has been overwhelming, even if bringing on new customers has been slow to start, Miller said. At the New York State Cannabis expo last year, he said Sunmark was one of the only lenders at the event and left with hundreds of business cards.
Miller expects the business to be a slow burn as retailers get up and running. Eventually, the business for Sunmark could grow alongside the industry. New York adult-use retailers are projected to generate around $1 billion in sales this year, and up to $2.7 billion in sales by 2026, according to the 2022 MJBiz Factbook.
“This is not going to be something that we’re going to open up a hundred accounts tomorrow,” Miller said. “We’re going to only open about 10 accounts in 2023, but we hope to have hundreds of accounts down the road as the new licenses come out.”
H/T: www.bizjournals.com
