- Luke Eastman
When Scott Sparks opened Vermont Hempicurean in downtown Brattleboro, he faced a challenge familiar to every entrepreneur in Vermont's budding cannabis industry: finding a bank.
Sparks asked around in search of a financial institution that would service his CBD and hemp products store. One name — the Vermont State Employees Credit Union — came up repeatedly. According to industry insiders, VSECU has become the go-to financial services provider for the state's pot-product purveyors.
"We felt an obligation," said VSECU CEO Rob Miller. "From a public policy standpoint, we don't have a position on marijuana, but we believe that if our members are engaged in legal business, and if we can provide those financial services and conform with all the regulations in a way that doesn't bring additional risk to the rest of our membership, then we're going to do that."
He described access to financial services as an "important basic need." The alternative — operating in cash — tends to invite crime and violence.
"VSECU offered a solution when I didn't have any other solutions," said Sparks, who opened Vermont Hempicurean in April. And he's not alone. At the credit union's Brattleboro branch, Sparks ran into representatives from the local medical marijuana dispensary.
Medical marijuana is now legal in 30 states, and recreational use is legit in nine. But the federal Controlled Substances Act still lumps pot in with heroin and other illicit drugs. Banks and financial firms that service the cannabis industry theoretically risk running afoul of money laundering and other U.S. laws. Potential penalties include asset seizure.
As a result, corporate banks remain reluctant to inhale. The CEO of Toronto-based TD Bank told Canadian reporters earlier this year that he would consider working with cannabis businesses in Canada, which legalized marijuana this year, only if the clients have no business ties to the U.S.
Forbes recently estimated that only 30 percent of the businesses in the country's legal marijuana sector have bank accounts. Without them, businesses can't pay employees by check or direct deposit. It can be difficult for weed entrepreneurs to line up companies to process payroll and credit card transactions.
"Just because CBD and cannabis is hot doesn't mean you can start a company and it's no big deal," said Ashley Reynolds, who runs the CBD product business Elmore Mountain Therapeutics. "There's a lot of red tape."
"That's half the questions I get: 'Know anyone that will bank with us?'" said Tim Fair, owner of the Burlington marijuana consulting and legal firm Vermont Cannabis Solutions.
Miller acknowledged that VSECU does business with medical marijuana dispensaries, hemp growers and CBD product purveyors.
There was no master plan to corner the business, he insisted. The credit union's board of directors agreed roughly four years ago to work with dispensaries. The other businesses followed. Miller declined to release any specific information about VSECU's cannabis-related accounts.
As in Vermont, small credit unions have led the way in cannabis financing elsewhere around the country. In Colorado, a credit union initially launched to serve postal workers is the preferred marijuana banker. In New Jersey, where a taxed-and-regulated marketplace became law this year, credit unions have publicly courted cannabis business. In Massachusetts, a tax-and-regulate system went into effect on July 1. Two months later, the GFA Federal Credit Union announced that it would offer basic services to cannabis clients.
Why credit unions?
Big banks with "national" or "N.A." in their name are federally chartered, which subjects them to the U.S. Department of Treasury's scrutiny. The publicly traded banks have additional reasons to be risk-averse.
Nonprofit credit unions, by contrast, often carry state charters — and answer primarily to regulators in places such as Montpelier, Miller said, though they are still subject to federal laws. These member-owned cooperatives have tapped into a market that Forbes estimates is already generating $9 billion a year.
VSECU was chartered in Montpelier in 1947 and, as its name suggests, was initially open only to state employees. In the 1960s, eligibility expanded to family members of customers. In 2002, the credit union started welcoming individuals who lived or worked in six Vermont counties. As of 2009, anyone who lives or works in the state can bank there. With nine branches across the state, the Montpelier-based VSECU had $791 million in assets as of August 2018 — up from $719 million the year before.
Its cannabis-related accounts came almost exclusively through word-of-mouth referrals.
"That industry is fairly close-knit," Miller said. "Once one company finds an acceptable solution on the banking side, they're going to tell a lot of others."
VSECU believes the risk of federal intervention is relatively low for now, Miller said. But credit union officials keep a close eye on federal policy and news from the U.S. Department of Justice, Miller said — and they make sure that cannabis-related businesses represent only a small percentage of the institution's holdings. In January, U.S. Attorney General Jeff Sessions revoked guidance issued by the Obama administration that allowed states to implement marijuana laws without federal interference. But so far, the feds have not reportedly targeted any financial institutions serving customers like Sparks, Fair and Reynolds.
VSECU's cannabis businesses pay slightly higher fees than its other clients, Miller said. That's because it takes staff more time to research relevant regulations and draw up agreements with weed entrepreneurs.
"It's to ensure that we're not losing money, given the service we're providing," Miller said.
A year ago, VSECU was the only outfit willing to offer financial services to Vermont cannabis businesses, according to Fair. Since then, he said, a few more banks and credit unions have dipped their toes in the water. They just don't want to reveal themselves.
Reynolds recalled walking into a local bank last year expecting to quickly open a checking account for her new business, Elmore Mountain Therapeutics. She was surprised when it took days and several conversations with higher-ups, who eventually told her they would work with her — if she didn't tell anyone about it.
"You think that the landscape is changing, but some banks do not feel that way," Reynolds said.
Representatives from People's United Bank, NorthCounty Federal Credit Union and the White River Credit Union did not respond to messages seeking comment for this story.
What do Vermont's financial institutions stand to gain by servicing customers in the cannabis business?
In January, Gov. Phil Scott signed into law a bill that allows Vermonters to grow and possess small amounts of pot. Legalization supporters have their eyes on a bigger prize: They want Vermont to join neighboring Massachusetts and seven other states to have a full tax-and-regulate retail marketplace.
Taxing sales at 25 percent could initially generate about $13 million to $21 million in state tax revenue a year, according to a 2017 Department of Taxes study. That suggests a total market of $52 million to $84 million.
"The tide is turning at such speed that people willing to take a relatively minor risk now are going to have the lion's share of the benefits when we have tax-and-regulate," Fair said. "Those companies are going to be the dominant players."
Miller said VSECU would consider doing business with retailers and related entrepreneurs, should the day come. But he insisted he isn't chasing profits.
"If that represents a big opportunity for us long-term, obviously that's fantastic for us, but we're more mission-driven in this regard than we are purely profit-driven," Miller said.
Either way, the customers keep coming.
Luce Farm co-owner Joe Pimentel, who grows hemp in Stockbridge and manufactures CBD products in Bethel, said he is hoping to secure loans to expand, and to get help finding a credit card processor. Reached by phone on a busy day of harvesting, Pimentel explained that he knew better than to ask big banks for help: He said he is deep in talks with VSECU.
"I like working with the little guys, anyway," he said.