Much of the discourse when it comes to the recreational legalization of cannabis in Minnesota has been simply confusing. A concrete set of rules about the regulation, sale, and distribution of cannabis hasn’t yet been released by the Office of Cannabis Management, despite full legalization taking place on Aug. 1, 2023. Something as simple as a license to sell cannabis is not yet finalized, leaving many to wonder if it is even worth investing in this market if they might not be able to obtain a license once they’re fully released. In addition to the questions surrounding regulations, questions are beginning to arise regarding dispensaries and banking. How can a dispensary bank, who can insure their products, and what do their taxes look like?
Questions of how to set up dispensaries, what products can be sold, and who oversees all of this linger, and how downstream businesses are impacted from the sale of cannabis is of key concern.
According to Lisa Salazar, the Chief Deposit Officer at Bridgewater Bank, these issues are far from resolved. “Banks don’t want to touch it because it’s illegal federally,” says Salazar. Although Minnesota is the 23rd state to legalize recreational marijuana, federal law makes dealing with marijuana difficult. This legal dissonance makes working with businesses that sell cannabis especially complicated, leaving many banks and insurance companies to refuse dealing with the industry altogether.
Bridgewater Bank has been developing a Cannabis banking program for years now, dating back to 2018. When Salazar created the program, it was because she “saw the writing on the wall” with the industry and wanted to make sure Bridgewater wasn’t caught flat-footed. The program took inspiration from previous state’s legalization processes in order to replicate their successes and avoid their mistakes. “We are building a program that manages risk and does its due diligence,” says Salazar.
What can Bridgewater’s cannabis program show about the future of the industry and how other downstream businesses like banks might interact with it? To start, due to the federally illegal nature of cannabis, the industry comes with a lot more oversight than even other heavily-regulated industries like manufacturing.
Standard documentation, like business documents and financial reports are needed, but additional forms like lab reports on what exactly is in the products sold, along with information on suppliers are required for Bridgewater to even consider new clients. According to Salazar, the key difference is “all that extra oversight, additional reporting,” and even annual site visits make the relationship difficult and more expensive for both parties.
An additional concern for banks is collateral. Unlike real estate, where a property can default back to bank ownership, banks don’t necessarily want to gain control of dispensary’s stock if the business fails. “What am I supposed to do with a warehouse full of weed?” Says Salazar.
The general dearth of information regarding how to run a business involving cannabis extends even to those in the downstream businesses surrounding cannabis. According to Salazar, it is important for companies like banks to have a cannabis team or program in order to point potential clients to. The danger of not having those specialized teams and programs can be that businesses move forward on bad information and end up having to radically change how they do business or close shop altogether. According to Salazar, examples of these miscommunications in the early months of a state’s legalization processes are not unheard of.
Another issue when working in the budding cannabis industry is how specialized the equipment can be. Bridgewater Bank requires specialized point-of-sale software specifically made for the sale of cannabis in order for the dispensary to be able to offer purchases with credit or debit cards instead of just with cash. Additionally, when working with dispensaries that mainly rely on cash transactions, cash transit partners with specific cannabis practices are recommended.
From marketing firms to banks to accountants to lawyers, a whole alternate ecosystem of cannabis related services might grow alongside the infant industries legal debut. To learn more about Minnesota Office of Cannabis Management, visit their website at cannabis.mn.gov/.
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