One-month-old medical marijuana program faces new challenges

Maryland’s medical marijuana program officially opened to the public this past December after several years of administrative delay. Consumer demand has been exceedingly high: many patients have waited for years to buy legal marijuana for medicinal purposes. As a result, several dispensaries ran out of product within the first few days of operations. Besides the insufficient supply, the nascent industry has already faced numerous difficulties.

One obstacle has proved particularly challenging for dispensaries and growers alike. Marijuana producers and distributors have found it particularly difficult to set up a banking account. For banks, the marijuana industry is dangerous territory; after all, although 29 state legislatures have given a thumbs-up on the medical marijuana industry, federal restrictions remain stringent. Even in Maryland, where medical marijuana has been decriminalized, banks worry that doing business with marijuana companies may step on federal law and incite backlash from other clients.

Marijuana’s status as a Schedule One federal drug makes it on par with heroin and cocaine in terms of federal classification. Marijuana advocates have been attempting to ease these federal regulations so that they are synchronous with statewide law.

Most business operations in other states like Colorado, where recreational marijuana was legalized with restriction in 2012, are conducted in cash only. Vaulted cash kept on-site, however, may become a target for criminal robberies. Some business ventures have attempted to create checking accounts, only to see them quickly dissolved by worried bankers.

Severn Savings Bank, in Anne Arundel County, has emerged as the first bank in Maryland willing to do business with medical marijuana dispensaries and growers. Multiple companies have reported that they have successfully opened business accounts with the local Annapolis bank.

These companies must spend time each day ensuring that they do not violate any Maryland protocols. The consequences of such would be harsh: the bank would likely have to sever ties with the dispensaries or face significant penalties. Business owners must therefore cross-check their accounts diligently to ensure that no money has been diverted to other funds or individuals. If a company were to be illegally selling medical marijuana to minors or otherwise violating state regulations, the bank could be held partially liable, depending on their degree of involvement.

Thus, it comes as little surprise that few banks are willing to be subjected to the risk in this new industry. Severn Bank has instituted various safeguards to ensure no violations occur. The vetting process is especially vigilant, and the bank has created a special compliance team to confirm it is abiding by federal and state protocol.

Due to the nature of the industry, the banking accounts of medical marijuana businesses are also limited. Businesses cannot write checks or seek loans from the bank. Nevertheless, for Allegany Medical Marijuana Dispensary CEO Sajal Roy, the exorbitant prices (he spent $3000 to open an account and pays monthly fees upwards of $1700) for the bank’s services are well justified. He uses the account to streamline the process of buying supplies as well as paying employees.

Jake Van Wingerden, who runs a licensed marijuana business in Cecil County, said to the Washington Post, “That bank was very quick out of the gate saying, ‘I want to work with the industry.’” He continued, “I don’t know how else we would do business.”

The fledgling industry is projected to return high profits and, provided that the system runs smoothly, will lead to high returns for Severn. Severn Bank chairman Alan J. Hyatt stated according to the Baltimore Sun, “This is a start-up, viable industry in the state of Maryland, and they need to bank somewhere.” Faced with significant media attention, Nicole Donegan, Marketing and Communications Director of Severn Bank, has stated that the bank is no longer commenting on the topic.

The stigma surrounding the cannabis industry remains a key deterrent for other banks, who remain unwilling to assume the risks of associating with medical marijuana businesses. Maintaining a checking account may lower that stigma and enable the cannabis industry to portray itself as a legitimate and investable market. With few other alternatives, the partnership between Severn Bank and the medical marijuana industry in Maryland may prove mutually beneficial as the young industry takes its first few steps out of the shadows.

Article by MoCo Student Staff writer Emily Tian of Richard Montgomery High School