Marijuana Business Magazine November-December 2019

Marijuana Business Magazine | November-December 2019 154 Banks in Canada have declined to throw their doors open to the U.S. cannabis industry since the Canadian government legalized marijuana for recreational use in 2018—even snubbing American companies doing business north of the border. KushCo Holdings CEO Nick Kovacevich said his diversified ancillary business is running into many of the same problems in the Great White North as it has in the United States. Initially, one of the largest banks in Canada showed interest in banking KushCo, especially considering the company has a Canadian unit— Kush Supply Co. Canada—that is not a plant- touching business, Kovacevich said. The subsidiary handles the packaging and ancillary product needs of licensed producers, processors, retailers and distributors in Canada. “We laughed and said, ‘Finally.’ But sure enough, that same bank came back and said it could not establish an account for us because the majority of our business operations are in the U.S.,” said Kovacevich, whose California company specializes in packaging and other goods and services. “You’d think in Canada it would be much easier. But ultimately, our solutions in Canada are with a credit union up there.” KushCo is avoiding transferring funds from the United States— where cannabis is still federally illegal—to Canada so it won’t jeopardize any of its banking relationships north of the border. Financial institutions in Canada may be hesitant to develop and maintain the oversight needed to bank those in the cannabis industry, said Tyler Beuerlein, executive vice president of business development for Hypur, an Arizona firm that provides services and technology to banks that want to work with cannabis companies. “There are industries that are perfectly legal that have been shut out of the banking system because they pose such a great compliance risk to banks and credit unions,” said Beuerlein, who also serves as chair of the National Cannabis Industry Association’s banking and financial services committee. “Cannabis is always going to present those problems—or at least for the foreseeable future, even if it potentially becomes legal in the U.S.” Beuerlein said ancillary companies might see more changes in the banking options and costs available to them based on the number of institutions willing to work with them in their state. “This is a state-by-state issue, so what happens internationally is not going to affect the dynamics in each state,” he said. “If you look at a state like Washington, there are six institutions that serve that market. Because there are six in that one state, that has driven the cost of an account down significantly. If you look at a state like Nevada, there’s one institution serving that market, and they’re very expensive.” – Adrian D. Garcia Despite the challenges, First Federal Bank of Florida, Partner Colorado Credit Union and other financial institutions have openly expanded their services to cannabis-related companies. However, most financial institutions that bank ancillary companies are not advertising these accounts and relationships. Every state has at least one option; you just have to know who it is, Beuerlein said. “Something we’ve done for years is, anytime an operator calls us, we will pair them with the appropriate institution even if they’re not our client. I’ve sent hundreds—if not thousands—of operators to the bank or credit union that they’re banking with today,” Beuerlein said. In some areas, ancillary businesses will be able to decide between multiple financial institutions based on location, costs and offerings, he said. ACCESSING BANKING SERVICES After a company identifies financial institutions within its state that are willing to work with ancillary businesses—either by getting referrals from those in the industry or calling various banks and credit unions directly—there are several steps it can take to secure banking services. Be transparent about the nature of your business, said Dan Roda, co-founder and CEO of Abaca, an Arkansas-based firm that facilitates banking services for underbanked and nontraditional industries. In addition to corporate documents, such as licenses, Abaca recommends ancillary companies provide banks with proof of identity for every owner of the business, proof of their residence—and, in some cases, background checks for those people. “It varies, but we tell our cannabis customers to expect a much more involved and high-touch banking relationship than they might be used to because of the level of information that the bank is required to have is so much greater in this industry,” Roda said. Banks will also look at companies’ websites and digital footprints for evidence the business is operating within compliance of state laws and as a normal, respectable enterprise with a track record and that it is “not just a front to launder money,” he said. CAUTION IS KEY KushCo Holdings, a diversified ancillary company specializing in packaging and other goods and services including vaporizers, still encounters problems when working with the banking industry, said Nick Kovacevich, the California company’s CEO. Nick Kovacevich is CEO of KushCo Holdings. Courtesy Photo Oh, Canada