Community Bankers of Michigan hosts cannabis banking forum

MARQUETTE, Mich, (WLUC) - The legalization of recreational marijuana is changing the landscape of Michigan's economy. However for the banking industry, things aren't exactly cut and dried.

Pixabay / MGN

Kate Angles, Director of Products & Services for the Community Bankers of Michigan sought clarity on a number of issues and helped to coordinate a special cannabis banking forum. She looks forward to resolving the growing list of questions surrounding the role of financial institutions and other businesses this new world of weed.

"It's an opportunity and it's a challenge for banks. They now have to ensure as an industry that their policies and procedures and what they are going to do and what they choose not to do are very well thought out and implemented," Angles acknowledged.

In addition, while Proposal 1 made recreational marijuana legal in Michigan, the Federal Government still considers marijuana and all its derivatives schedule 1 drugs which makes usage, possession and sale of marijuana illegal on a federal level.

However, Michael Kus of Kus, Ryan & Associates law firm says the Federal Government is not currently concerned with prosecuting licensed grow facilities and dispensaries that are adhering to current regulations.

Kus has decades of experience counseling financial institutions in Michigan on legal issues such as compliance, regulatory matters and loan documentation.

"They want to make sure that money is put into the system. They don't want a back door industry where money is being laundered illegally. So really, what we're attempting to do is assist the Federal and State Governments to make sure that money is into the system," Kus declared.

Kus says there is some guidance that has been provided by federal agencies that help banks appropriately report and track marijuana money. This way, Uncle Sam can tax these new marijuana businesses appropriately.

While that may sound easy enough, the issue becomes clouded due to overlapping and opposing state and federal guidelines.

"Because it’s still a controlled substance, they don't get the same tax breaks when you’re filing your federal income tax that any other business would," Kus reasoned.

According to Kus, businesses that make money from marijuana sales are not able to benefit from many common tax deductions such as travel, payroll, and other expenses.

“Their taxing scheme is completely different. It could go as high as 50 to 70% of their income. So it's a real big problem," Kus declared.

This dilemma creates an interesting catch-22 when banks work with what are called tier two and tier three businesses.

A tier two business maintain a mutually beneficial relationship with marijuana businesses, according to Kus.

"It could be an accounting firm. It could be an HR provider. It could be the landlord who’s renting the space," Kus asserted.

Tier three businesses provide hydroponics to grow the plants, lighting system, other products related to the marijuana industry and receive income as part of the transaction.

In other words, an accountant might prepare the taxes for a business engaged in the sale of marijuana. While that accountant is not directly associated with the sale of marijuana, that income is now indirectly associated with marijuana and must be tracked.

"It goes very deep into the economy and we anticipate that probably within three years, you’re going to have 25,000 to 30,000 people directly employed in the industry. So it's going to have a pretty significant economic effect in the state," Kus related.

As Kus points out, the impacts of both the medical and recreational marijuana industry are forecast to take deep roots in Michigan's economy. Those employees will groceries, houses, and cars and will send their children to college with marijuana money.

Just like the money anti-laundering regulations that have been in place for the past 40 years, bankers will be trained to identify and report marijuana money to the Federal Government. This is especially necessary looking to the future, as existing vague, broad regulations become more clear-cut.

"There's a bill in Congress that would give a safe harbor to financial institutions in those states where the sale of marijuana is legal. We anticipate that bill won't pass this year, probably not next year, but probably sometime soon thereafter," Kus calculated.

In fact, Kus predicts a similar change on a national level within the next three to five years.

"I think eventually it's going to come off the controlled substance list. At that time, I think it's a [financial] free-for-all. You know the beverage companies are going to go after it, the cigarette companies and the pharmaceutical companies. It's going to be another source of income for them," Kus predicted.

A similar scenario is unfolding right now across Canada. Kus says for the U.S. the writing is on the wall.

"I think that marijuana will become an everyday, household product in the near future, just like beer and wine. I anticipate that somewhere down the road the Federal Government is going to approve it sooner than later,” Kus concluded.

"It's an ever-changing landscape. It's going to be an interesting next couple years," Angles offered.

For bankers here today, it was a lot to take in before lunch. Other items on their agenda include cyber security awareness and and update on Current Expected Credit Losses. Click here to find more information from the Community Bankers of Michigan.

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