Vixen Yerock earned a degree in plant molecular biology from the Rochester Institute of Technology in New York. She’d spent the last 15 years, though, as a manufacturing engineer specializing in process efficiencies.
But in early 2022, Yerock was given an opportunity to return to working with plants after being hired by one of Michigan’s largest marijuana firms, Common Citizen. Accepting the job meant moving from Oklahoma to the Marshall area where Common Citizen operates its 200,000-square-foot cultivation facility.
Yerock secured a home loan from an FDIC-approved bank and was set to close on a new home in March — that is before the bank discovered she was soon to receive paychecks from a major weed supplier. Gateway Bank, who underwrote the mortgage, notified Yerock two weeks before closing on the home that they would not service her loan due to who was signing her paycheck.
Efforts to ease banking for those employed by legal cannabis operations have been slow to materialize.
Congress has spent more than three years kicking around the SAFE Banking Act, which would provide certain protections to banks that choose to provide financial services to the legal marijuana industry. The law passed the U.S. House of Representatives in 2021 but has advanced no further.
The law is most commonly discussed to end exclusive cash use by the industry, which is forced to move millions of dollars of cash around daily, creating unsafe and untenable situations for marijuana companies. But it’s the personal banking relationships held by employees that are most vulnerable.
“Most stories we’ve been hearing around SAFE Banking is on the corporate need,” said Jenn Zielinski, government affairs manager for Common Citizen. “The narrative focuses on the cash and the crime. But, in reality, that’s not really an issue. We are no more crime-ridden than any other retail location. The lack of banking is really a burden to the industry’s workforce.”
In 2009, the U.S. Department of Justice, responding to states that were legalizing medical marijuana — Michigan legalized medical marijuana in 2008 but didn’t prop up a recreational industry until 2019 — sent a memo noting that marijuana remained an illegal narcotic from the federal perspective. But the feds targeting cancer patients and caregivers, those who grew and supplied marijuana to those patients, was “likely not an efficient use of federal resources.”
As more and more states began the commercial sales of marijuana — Colorado and Washington state began selling recreational marijuana in 2014 —the Federal Financial Crimes Enforcement Network (FinCEN) issued a memo clarifying how banks could operate with marijuana businesses.
The memo created a set of guidelines so banks could remain in compliance that involved arduous record keeping, including filing Suspicious Activity Reports for every marijuana-related transaction. However, the feds would remain diligent, according to the memo, in prosecuting money laundering and fraud claims if any bank failed to comply.
In Michigan, a handful of local credit unions and banks saw an opportunity in banking marijuana business, believing they were able to handle the labor-intensive compliance reporting for a small stable of marijuana clients.
Mason-based Dart Bank and Fraser-based Live Life Federal Credit Union were early adopters in the state. Flagstar Bank is also known to bank cannabis here.
Live Life Federal Credit Union, which built a growing business banking marijuana by 2019, was slapped with a cease-and-desist order in February 2021, the first known federal crackdown on marijuana banking. The U.S. National Credit Union Administration issued the order alleging Live Life failed to comply with reporting procedures. Life Live was barred from opening new accounts until April 2021 and faced no other repercussions.
Dart Bank did not respond to inquiries about its marijuana services. Flagstar Bank declined to comment.
“There is a robust number of banks and credit unions across the state that are banking cannabis and cannabis businesses,” said Patricia Herndon, executive vice president of government affairs at the Michigan Bankers Association. “Whether an employee or a business, those accounts can still be considered a money launderer. There can be repercussions there. But there are banks that have made the investment to have compliance in place and they are the best matches for these employees.”
Large national banks have avoided marijuana banking because the size of their operations likely makes rigorous compliance much more difficult.
For mortgages, they are split into two camps — Freddie Mac and Fannie Mae, federally-backed home mortgage companies that guarantee mortgages issued through lenders. Freddie Mac primarily works with large banks and Fannie Mae with smaller institutions. Freddie Mac will not back a mortgage involving cannabis employees, but Fannie Mae will, said Kelli Peterson, a loan originator for PrimeLending in Portage. Owners of marijuana companies are completely barred from mortgages from both institutions, Peterson said. She helped Yerock quickly secure a mortgage when Gateway balked at the loan.
Cutting the mortgage industry in half is costly for employees, Peterson said. For instance, cannabis employees can’t access Freddie Mac’s Home Possible program, which provides those with lower incomes a mortgage with a low-down payment and lower fees.
“Because Freddie won’t allow a loan to a cannabis employee, 50 percent of the industry is cut off from them,” Peterson said. “Home Possible is off the table. These people need homes too.”
To avoid any possibility of money laundering or wire fraud charges, the big banks began immediately purging accounts held by marijuana company owners and executives in the state.
In 2020, Bank of America terminated its banking relationship with David Morrow, CEO of the state’s largest marijuana company Lume. Morrow said he had millions of dollars in various BofA accounts, including money-managed accounts and loans.
“They treated me like a coke dealer,” Morrow said. “All of my accounts, my wealth management accounts, everything was booted. I got into this business to help out Bob (Barnes, majority owner of Lume). The last thing I was looking for was to have my entire personal banking relationship to get tossed out the window.”
Morrow said the bank he’d used for more than 20 years only noticed his paychecks were coming from the marijuana industry after he applied for a mortgage for an investment property and internal compliance auditors flagged his accounts.
He has since moved his accounts to another bank in the state.
“Look, this cost me a lot of money, but it’s nothing on what it’s done to our employees,” Morrow said. “Ask anyone working in the industry and they’ve faced issues with banking. It’s all hypocritical. They go after people working in this industry, but what about the people buying weed? They are taking money out of their banks and buying weed. It’s discriminatory, because they go after the sellers, not the buyers.”
Paul Bugajski, director of operations for Common Citizen, faced a similar fate. In May, Huntington Bank terminated his personal bank account, his credit card account and his farm account for the small farm the family runs in Northern Michigan.
“We received a letter that said we had 22 days to get this straightened out,” Bugajski said. “We were loyal and had money in that bank for years.”
Bugajski, a former aviation manager at Eaton Corp., said the bank never fully disclosed why his accounts were terminated but after hearing from his peers, he suspects it was because he works in marijuana.
In a statement to Crain’s, Huntington said it must terminate any accounts associated with marijuana due to federal law.
“As a federally chartered institution, Huntington must adhere to federal law, including when it conflicts with any state or local statutes,” the Columbus, Ohio-based bank said in the statement. “At this time, marijuana remains federally scheduled as a controlled substance, and the manufacture and sale of marijuana remain illegal at the federal level. We continue to monitor federal lawmaking efforts on this subject.”
Yerock’s banking troubles didn’t stop at a mortgage. To clear her driveway of snow, she went to purchase a side-by-side utility vehicle and plow. The dealer, however, was unable to secure a loan for the vehicle due to her employment as a Six Sigma manager at Common Citizen.
Her wife, who does not work in cannabis, had to drive up to the dealer and apply for the loan.
Two other employees at Common Citizen were denied financial assistance for hearing aids through Michigan Rehabilitation Services, a state program that assists employees with disabilities, said Amanda McCrary, chief human resources officer for the company, said. MRS is regulated by the federal Workforce Innovation and Opportunity Act.
In an emailed letter to McCrary, MRS wrote it is prohibited from “supporting services or employment goals associated with growing, selling, producing, handling, or distributing marijuana in any form.”
“People working in the industry can’t benefit from these programs,” McCrary said. “People who work for us are disproportionately impacted by the federal government’s stance on cannabis.”
A change is on the horizon, though.
The U.S. Department of Health and Human Services recommended this week that the Drug Enforcement Agency move marijuana from a Schedule I to a Schedule III drug. Rescheduling the drug would immediately clear up marijuana business issues, such as ending the 280E tax, which prohibits marijuana sellers from writing off business expenses.
Rescheduling to a Schedule III, while not legalizing marijuana at the federal level, would also likely make it much easier for banks to enter the marijuana space for both businesses and employees.
“I don’t see a need for the SAFE Banking Act if this in fact becomes the official position,” Jonathan Havens, a cannabis attorney at Philadelphia-based Saul Ewing who previously worked for the FDA, told Politico Wednesday. “I’m not saying that all banks will want to jump into this space, but the need for safe harbors I don’t think exists like it does today.”
It’s unclear whether the DEA will move to reschedule marijuana and when. It’s also unclear whether rescheduling would impact federal assistance programs like the MRS hearing aid program.
Gov. Gretchen Whitmer has called for Congress to pass the SAFE Banking Act on several occasions. Employees at Common Citizen also met with Lt. Gov. Garlin Gilchrist II in August to discuss their banking problems. In addition, Common Citizen is working with the Michigan Chamber of Commerce to create a lobbying coalition in Washington D.C.
Another attempt to get the SAFE Banking Act passed is also afoot. Herndon said the bill is likely to move to a Senate committee in September.
Until then cannabis businesses and employees will be forced to use local banks and credit unions for financial services.
“We’ve all been taken advantage of,” said Morrow. “We’ve all had to pay five times the fees or a higher interest rate. Everyone in this industry has a story. It’s gone on for years. We’re just regular people trying to do regular business in a legal industry.”
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