Bankers and marijuana go together like arachnophobes and spiders, which is to say financial institutions studiously avoid any whiff of weed-related deposits.
That’s why First Green Bank’s new strategy is so striking. The Orlando-based financial institution is aggressively courting Florida’s marijuana businesses.
“It’s our understanding we’re the only one doing it,” Ken LaRoe, founder and chairman of First Green Bank, said in an interview Wednesday.
Since 71 percent of Florida voters approved medical marijuana last year, pot shops have sprung up around the state. LaRoe says six of Florida’s seven state-licensed cannabis companies bank with First Green Bank, although the hue in the institution’s name refers not to ganja but to the bank’s penchant for environmentally sustainable projects.
First Green handles dispensaries’ cash, but it keeps a decidedly hands-off approach. The federal prohibition on marijuana makes sales a cash-only business, and First Green works with an armored-car company that carries currency directly from dispensaries to the nearest Federal Reserve location.
“We don’t touch the cash,” LaRoe said.
First Green Bank is the rare financial institution to venture into cannabis. Amid a wave of state marijuana legalization that began in Colorado and has spread to California and more than two dozen other states, bankers have deferred to federal law.
Banks are especially intertwined with the federal regulatory system. While banks can opt for state charters rather than federal charters, even state-regulated banks lean heavily on Washington to provide crucial services. The Federal Deposit Insurance Corp. guarantees customers’ balances. The Federal Reserve clears checks. The Treasury Department prints currency, and a host of federal agencies have the authority to investigate financial crime.
What’s more, a widely cited memo from a deputy attorney general in 2014 set a high bar for banks that do business with marijuana businesses allowed by state laws. Bankers could face criminal prosecution if money from organized crime makes it into pot companies’ bank accounts, the memo said.
With federal regulators looming large over financial institutions, few bankers have proven bold enough to accept deposits from the pot business. LaRoe said his executives spent months working with state regulators to persuade them that First Green Bank could handle cannabis cash responsibly.
“The state wants us to have a rock-solid kill switch,” LaRoe said.
In other words, if federal regulators order First Green to stop banking cannabis companies, the bank must close their accounts in 24 hours.
Alex Sanchez, head of the Florida Bankers Association, lauded First Green Bank for pushing into an untested industry.
“To their credit, they have checked every box,” Sanchez said. “They have done an incredible amount of due diligence to get to this point.”
In Colorado’s thriving marijuana sector, stories of cash-only operations have become legion. Employees are paid in cash, and even tax bills are satisfied with stacks of greenbacks. In Florida, marijuana companies like Surterra Wellness are able to issue paychecks because they have checking accounts.
“We would certainly be in a tough spot without First Green,” said Jim Whitcomb, Surterra’s chief financial officer. “It would be difficult for the industry to scale in Florida without banking relationships.”
First Green Bank has amassed about $30 million in deposits from marijuana companies, LaRoe said. The bank had $485 million in deposits as of March 31, according to the FDIC.
While First Green is taking cannabis cash, it isn’t yet keen on extending loans to marijuana companies. In one exception, the bank in July issued a $2.6 million mortgage on a building on North Dixie Highway in Lake Worth, a property that will house a marijuana dispensary, along with other tenants not related to marijuana.
LaRoe listed a number of downsides to making loans to marijuana businesses: The property is subject to seizure by authorities, contracts can prove legally unenforceable and disentangling a loan from a bank’s books is tricky.
LaRoe said he felt compelled to bank cannabis companies in part because of the experience of his wife, who found marijuana helped her after she suffered a brain injury while bicycling. After prescription drugs failed, medical marijuana cured her seizure disorder, LaRoe said.
For now, First Green Bank enjoys a monopoly in Florida’s medical marijuana industry. LaRoe said that’s good for his pricing power, but he’d feel more comfortable if more institutions began taking cannabis companies’ cash.
“I’d like to see other banks getting into it,” LaRoe said, “just because there’s strength in numbers.”