Craig Guillot
Craig Guillot Mar 13, 2018

Marijuana, banks and the perils of a growing business

Todd Kleperis heads an organization that uses unmarked armored vehicles and heavily-armed men (including veterans) to shuttle bundles of marijuana and bags of cash throughout southern California. He doesn’t like to talk about the details of his operation and his drivers avoid federal checkpoints at all costs.

Yet what might sound like a criminal endeavor is a legitimate operation licensed by the California Bureau of Cannabis Control. Kleperis is CEO of Hardcar Security, one of a growing number of companies serving the growing marijuana industry. Hardcar is experiencing triple-digit growth and on track to “do a couple hundred million [dollars]” within the next few years.

But it lacks access to traditional financing, Kleperis says. “We can’t get a regular traditional loan to buy trucks. We’ve been turned down multiple times. There really isn’t any traditional financing available for the industry.” 

While broadly legal in 30 states and the District of Columbia, marijuana remains illegal under federal law. Thus, few banks want to accept deposits from these companies—even fewer offer traditional loans. As a result, marijuana cultivators, transporters and retailers operate in cash and turn to private investors and alternative financing. 

In a largely unbanked industry, ‘these companies become targets.’

Recreational marijuana is currently legal in eight states and forecast to become a $24 billion industry by 2025, according to the Cannabis Industry 2017 Annual Report. The Cole Memorandum, drafted in 2013 during the Obama administration by deputy attorney general James M. Cole, advised U.S. attorneys to refrain from prosecuting state-licensed marijuana businesses unless they violated federal law.

The industry has since grown and so too has the amount of cash it generates. With limited options for deposits, many marijuana companies hire security firms like Hardcar to transport and store large sums of cash. “It’s creating a big security risk: These companies become targets,” Kleperis says.

Nathaniel Gurien, founder and CEO of FINCANN, estimates only 1,000 of the 15,000 marijuana licensees in the country have “transparent” relationships with banks that know what they’re doing. While banks can accept marijuana cash, it’s at best a legally risky endeavor that can come with cumbersome regulatory and compliance issues. Most simply don’t want the hassle.

Banks can check state licensing information to rule out obvious marijuana companies but thousands of companies provides ancillary services to the industry. Many of these companies simply don’t disclose that they serve the marijuana industry because the risk of getting caught, and the subsequent consequences, aren’t that big. 

“The bank just closes their account and hands them a check. And they just go to another bank,” Gurien says. “It’s so hard to get an account that they just go through this four or five times per year.”

Taking the risk to go green

While many banks don’t want to publicly discuss their service of the industry, Numerica Credit Union in Spokane Valley, Wash., has been accepting marijuana cash since April 2014. It even has a dedicated Cannabis Business Account Team. The credit union entered the market after a “lengthy discussion” with its board of directors and receiving approval from the Washington State Department of Financial Institutions, says spokesperson Kelli Hawkins.

“We felt it was vital to the safety of our community that legitimate, licensed businesses be able to deposit their funds in a safe and secure institution,” Hawkins says.  

Numerica requires a recreational or medical marijuana business license from the state of Washington and the appropriate municipality in which the company operates. Applications undergo due diligence and an approval process that typically takes seven to ten days.

Numerica limits deposits for marijuana members to $5 million at any one time. Accounts are also limited to deposits, ACH transfers and checks, and do not include bill pay, mobile banking or credit cards.

The credit union currently has 270 marijuana business members and while it takes cash deposits, it stops short at lending. Because of the legal uncertainty, federal authorities could technically reverse their leniency and drop the hammer, putting marijuana industry assets at risk for seizure.

“If a decision was made to prosecute a canna business member, and property that secured a loan was seized, it would result in a loss that may ultimately hurt the safety and security of Numerica,” Hawkins says.

Private investment, unsecured loans the only lending options

The lack of traditional financing has become a big impediment to growth in the industry, says Leslie Bocksor, President of marijuana advisory firm Electrum Partners and founding chairman of the Nevada Cannabis Industry Association. Bocksor, a former investment banker, says it’s also presenting problems for landlords when the bank finds out they’re leasing their property to a marijuana business. 

“It’s an interesting landscape,” Bocksor says. “When most of these [financial institutions] wrote their charters, they probably never anticipated a situation where there could be a difference between federal and state legality on business.”

Some non-traditional lenders are stepping in to fill the void. Diamond Business Loans actively advertises marijuana business funding unsecured cash capital. Jonathan Kohanoff, president, says the demand has been strong and that they offer financing on a “case by case” basis that depends on operations, history and location. The company is currently seeking to partner with other banks and lenders to access more capital.

“Many of those businesses have double- and triple-digit growth year over year and most of the loans get paid off sooner than they are due,” Kohanoff says.

California State Treasurer John Chiang said in late January that it’s a public safety issue and the state will soon study the feasibility of creating its own bank to serve the industry. Chiang noted in a press release that the growth in the industry could rival that of dot-coms, and that a solution will remain unlikely until the federal government removes marijuana as a Schedule 1 drug under the Controlled Substances Act or creates safe harbor legislation for banks.

“The reliance on cash paints a target on the bank of marijuana operators and makes them and the public vulnerable to violence and organized crime,” Chiang said.

Meanwhile, some marijuana entrepreneurs quietly use personal lines of credit, home equity lines of credit and unsecured debt to fund real estate acquisition, facilities and processing equipment. Others utilize private financing.

At Hardcar, Keleperis says the only way to capitalize on the surging business is through acquisitions and by buying more trucks. “And that takes capital,” he says. “We just have to hunt for more money. Get more investors.”

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Craig Guillot is a business writer who specializes in retail and finance. His work has appeared in such publications as Wall Street Journal,, and Better Investing.

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