NEW YORK (MainStreet) — Marijuana CEOs earning millions a month have nowhere to put their money in many cases, and as a result, they are dangerously paying their bills and staff in cash.
“Employees make good money in the industry, but they are not able to show paycheck stubs, establish credit or buy a home, because they can't show where the income comes from,” said Michael Jerome, CEO with the Blue Line Protection Group. “Banks that do offer services to marijuana businesses are often not compliant and as result there’s always a risk the Drug Enforcement Administration will shut it down.”
But now that marijuana sales are allowed on sovereign tribal land, Native American chartered banks may provide a new opportunity for pot CEOs to transact beyond deposits.
Sovereign refers to the inherent authority of indigenous tribes to govern themselves within the borders of the United States of America.
“Tribes are able to set their own laws within their own territories although there are considerable questions regarding how such a system might integrate with the banking system within the United States," said Rob Porter, a tribal law expert and former president of the Seneca Nation in New York.
A credit union or bank on tribal land would not be required to file a Suspicious Activity Report, according to Leslie Bocskor, founder of Electrum Partners, a marijuana related hedge fund.
“The banks owned by tribes can just operate, but it would be advisable for them to adhere to FinCEN guidance, because it involves a level of due diligence as it regards to know your customer type policies and procedures that is good business,” Bocskor told MainStreet.
FinCEN, the Financial Crimes Enforcement Network, writes the rules and regulations that U.S. financial institutions like banks, credit unions and money services businesses must follow to help protect the U.S. financial system from money laundering and terrorist finance.
“What’s next is an outside firm could enter into a management agreement to operate a bank on an Indian reservation and begin accepting deposits from dispensaries whether they are on or off sovereign territory,” said Bocskor. “Indian guidance is a game changer for the entire cannabis industry.”
Partnering with established banks that are already doing business with marijuana CEOs is wide open territory.
“There is plenty of business in the cannabis industry to go around and financial institutions willing to participate will establish their own niche market,” said Carmella Murphy Houston, vice president of business services with the Salal Credit Union, which is one of the few financial institutions that transacts with pot businesses in Washington state. “We have not received any requests to bank businesses or finance commercial real estate on tribal lands so we wouldn’t be competing directly.”
Although the Department of Justice announced Indian tribes can sell pot, the growth, cultivation, sale and use is still federally illegal.
"Federal Indian reservations are generally exempt from state jurisdiction including taxation except when Congress specifically authorizes such jurisdiction," said Wyn Hornbuckle, spokesman with the U.S. Department of Justice. Tribal leaders will face certain legal challenges that confront Indian reservations interested in getting involved in the marijuana business.
“They will still need to comply with Cole Memo guidelines, set up rules to monitor compliance and be careful about reservations that are situated on lands in states that have not approved recreational marijuana,” said Marc J. Ross, a corporate and litigation attorney who is teaching a marijuana business class at Hofstra University School of Law.
--Written for MainStreet by Juliette Fairley