Cannabis Investors Seek Federal Banking Reform As BoA Closes Account Of Prominent Marijuana Research Firm

The cannabis world was abuzz last week when the news dropped that Bank of America closed the bank account of Arizona cannabis and psychedelics research outfit Scottsdale Research Institute (SRI), which is run by long-time medical cannabis researcher and activist Dr. Sue Sisley. According to documentation obtained by Marijuana Moment, “This decision is final and won’t be reconsidered, even though the Drug Enforcement Administration has granted the institute approval for their work in May 2021. The institute had been doing business with Bank of America for 10 years up until now.

This underscores the need for reformed banking regulations at the federal level, which is echoed by loud conversations in the capital markets world advocating for SAFE banking and other tweaks to legislative hurdles, not the least of which is legalization. This time, the voices seem louder — it’s easier for the everyday person to sympathize with a medical cannabis researcher than it is a big MSO or other cannabis business, so this case has become a new rallying cry for the industry to lobby for passage of SAFE banking, among other things.

The truth is that it’s something of a myth that banking doesn’t exist for cannabis businesses. 

“Most people are confused. They think that there is no banking,” Pelorus Equity Group co-founder and president Rob Sechrist said, referring to the restrictive banking climate cannabis companies must operate in due to cannabis’ federal illegality.

“There’s actually an enormous amount [of formal banking activity in the cannabis industry]. We’ve never seen a borrower or a tenant that we’ve ever written, out of a few thousand transactions we’ve seen, not have banking in place. Currently, there are 694 banks that have a depository relationship for cannabis related businesses,” Sechrist said. He added that the main reasons some banks may not engage in business with cannabis businesses are because of reputational risk, as well as compliance risk.

There are companies, like HD Compliance, Operational Security Solutions (OSS), and Confia are stepping in to help banks reduce their fears of banking cannabis businesses, as well as bridge this information gap to help them see how profitable and easy it can actually be. But what does that actually look like, in practice?

“It is a disappointment, but not a surprise, that Bank of America has taken this limited view,” Andrew Montgomery, CEO of HD Compliance said.

“One could probably list many pharmaceutical companies that, despite the devastating and addictive outcomes of their products, have used Bank of America financial services. While cannabis is not FDA-approved like many of these products, it seems that the Scottsdale Research Institute is looking to prevent these types of negative outcomes by studying it with the approval of the DEA. In order to do so though, this organization needs safe banking and funding.”

Montgomery is not the only one who is far from surprised. “Unfortunately, this is not a surprise to me. This is an example of two key issues with the current way we approach cannabis banking,” said Mark Lozzi, CEO of Confia.

“First, federal illegality is putting banks under pressure and exposes them to undue reputational risk. Second, supporting a cannabis program, even if supported by the federal government, is a compliance burden to any bank in the US,” Lozzi said.

“It’s hard to argue with the first point; cannabis is illegal until it’s not. For a bank to support cannabis, it requires following detailed policies and procedures that are cumbersome, especially for big banks like BofA. This is not to say that the compliance burden cannot be minimized and or handled — it is just an example of how banks need to spend time, energy, and/or investment in technology that supports the complex cannabis industry,” Lozzi said.

Specifically regarding Scottsdale Research Institute, regardless of their federal support, Lozzi said compliance is mandatory and therefore a lot of work for banks, which see a minimal return on their end. Ahead of legislation changes, he said financial regulations are going to increase and tighten on banks who support cannabis businesses. Scalable technology and procedures will be necessary to make it “worth their while.” 

“From our perspective at Confia, once the US reaches a tipping point on compliance execution, banking will be commoditized. The cannabis banking compliance landscape today does not correlate to traditional compliance done by banks, and so that uniqueness will be a hurdle all parties need to overcome and manage,” Lozzi said.

“ This is not the first account, related to the cannabis ndustry that has been closed down and it won’t be the last,” said Ryan Hale, chief sales officer of Operational Security Solutions.

“The FinCEN 2014 Guidelines are still in effect, which don’t necessarily provide the comfort level for FDIC licensed organizations from prosecutorial fears. Banking for the cannabis industry is legal and there are a multitude of Institutions that have dedicated cannabis banking programs, many of which we support,” Hale said.

The fact remains that any bank can make the decision to close an account, without providing justification. Hale said that if the AML/BSA or compliance team for the institute arrives at a decision that an account has suspicious transactional activity or possesses a reputation so risky that doesn’t align with the board policies or member services agreement, they will continue to make decisions to shut down accounts.  

“We have worked with easily 40 MRB operators this year alone that experienced an unexpected and swift account closure to find a banking relationship that met their needs,” Hale said.

Hale said that “most of the industry” is waiting for the hopeful passing of the SAFE in anticipation that it may provide relief from account closures, especially considering the plant causing the problems is also the one companies make their revenue from. But SAFE won’t be a cure-all, either.

“SAFE doesn’t provide protections from accounts being closed for policy or reputation reasons.  We can’t encourage the cannabis industry enough to seek banking relationships with financial institutions that have created and are delivering high-risk banking programs, tailored for our industry,” Hale said. Pelorus Equity Group, mentioned earlier, is one such institution. Pelorus is an mREIT that can offer credit lines to cannabis businesses seeking capital for commercial real estate transactions.

“Transparency and openness is absolutely critical, and operators need to understand that whether they are directly plant-touching, or an ancillary vendor in the industry, robust banking solutions are available, but not currently via most major institutions,” Hale added.

“SRI experienced what so many have in the industry and it is even more frustrating as SRI was open with Bank of America in their efforts to enable research under DEA licensing,” Hale said. He adds that there are a large number of operators that are opening accounts with banks like Bank of America that are masquerading deposits, obfuscating transactions, and being intentionally vague on the nature of their business and revenue sources.

“It places a level of suspicion for the AML/BSA compliance officers across the board,” Hale said. He continued, “As an industry, we can work with our financial institutions and regulatory bodies to continue to grow cannabis banking and the long term relationships our cannabis operators need and have worked so hard to earn.“


In accordance with an executed agreement between The Dales Report and Pelorus Capital Group, The Dales Report is engaged with the aforementioned on a 12-month contract for $7,500 per month, with the purpose of publicly disseminating information pertaining to Pelorus Capital Group via The Dales Report’s media assets, encompassing its website, diverse social media platforms, and YouTube channel. Compensation for The Dales Report services involves the receipt of a predefined monetary consideration, which may, on certain occasions, encompass ordinary shares in instances where monetary compensation was not obtained. In such instances where share compensation was received, The Dales Report hereby asserts the right to engage in the acquisition or disposition of such shares subsequent to the conclusion of the aforementioned contractual period, in compliance with provincial, state, and federal securities regulations. Please refer to the “Disclosures” section below, which is to be interpreted in conjunction with this disclaimer.

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