Some aspiring marijuana business owners struggle to secure banking services in Minnesota

Elliott Tapelt estimates the conversation lasted all of three seconds.

He asked an assistant manager at his credit union what services would be available to help run a marijuana microbusiness he wants to open by October.

“They were like, ‘We don’t do that kind of stuff,’” said Tapelt, 39, of Minneapolis, who is vying to break into Minnesota’s budding recreational marijuana market after receiving preliminary license approval from the state this year.

After a two-year phase-in of its recreational marijuana program, the state now has five fully licensed marijuana business owners outside of tribal dispensaries, including one working toward retail sales. As entrepreneurs like Tapelt work to stand up their operations — forming business plans, courting investors, hunting real estate, seeking local approvals — finding financial backing and reliable banking services can be difficult.

Getting a bank for a marijuana business is easier today than it was when Colorado and Washington became the first states to legalize recreational use. Deposit solutions have emerged to manage problems like being too cash heavy. Visa and Mastercard still prohibit consumers from putting weed on credit, but dispensaries in some states have workarounds allowing debit transactions at the counter.

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“A lot of the bigger banks stay away from it. But it’s not impossible,” said Jason Tarasek a cannabis attorney. “It’s not like the early days in Colorado when the dispensaries had to actually buy buildings to store all their cash in.”

The drug’s federally illegal status means loans backed by the Small Business Administration are forbidden. Government-backed mortgages are also unavailable.

Cannabis businesses are highly risky, and most financial institutions are reluctant to offer any business lending. Often a client needs significant existing assets to get a loan, said Carol Moss, an Edina-based cannabis attorney. Some banks are developing the “rich uncle approach,” where a wealthy investor or family member creates a line of credit for a cannabis company drawn from a certificate of deposit.

Tarasek said the multibillion-dollar cannabis industry fanning across the states hangs on a memo issued by a Justice Department lawyer during President Barack Obama’s administration.

It promises the federal government will not crack down on state-legalized businesses, so long as minors cannot buy it, organized crime cannot profit and marijuana does not divert to other markets where use remains illegal.

“It’s not for the faint of heart,” Tarasek said. “Being an entrepreneur in any business is challenging. Most businesses fail. You want to go into cannabis? Multiply it by 100 and cross your fingers, man. It’s tough.”

Regardless of marijuana’s legal status in a state, banks and credit unions are still required to follow stringent federal laws and regulations that put marijuana in the same category as heroin.

That leaves it a risky business for banks, said Joe Witt, president of the Minnesota Bankers Association. The federal rules could effectively treat a bank as an accessory to a crime for providing services to a marijuana business.

“The penalty is, you forfeit all of your assets,” Witt said, adding the industry faces “a lot of headwinds” despite states’ legalization.

In the two years since Minnesota legalized recreational use, credit unions have been taking the time to understand the unique risks and investments required to handle marijuana businesses, said Mara Humphrey, president of the Minnesota Credit Union Network.

Other states have helped provide a roadmap of the challenges ahead to comply with the Bank Secrecy Act and Anti Money Laundering Act. Marijuana businesses still tend to deal with a lot of cash, she said, which can present logistical and security issues.

CEO Brent Rempe said First Alliance is taking a slow and steady approach, starting with deposit services, which other financial institutions are unwilling to do. He said the market is underserved and his credit union wants to fill that role.

“Historically, it’s in our DNA,” Rempe said. “Every single credit union has some kind of story where people were turned away from other financials.”

Also breaking into Minnesota’s cannabis business space is Bridgewater Bank, based in St. Louis Park. The bank started to explore cannabis banking opportunities after the 2018 Farm Bill removed hemp from the U.S. controlled substances list.

The unique launch of Minnesota’s THC drinks, supplied by low-dose hemp, offered firsthand experience developing a program serving clients in the state’s legalized marijuana business, said Lisa Salazar, the bank’s chief operating officer.

Salazar said Bridgewater’s program is designed to consider businesses operating in all channels of the new marijuana industry. And though the bank is not equipped to serve every financial need, she said, “We’re trying to take a look at every possible scenario for us to help them.”

After finishing college with a degree in chemistry, he said, it took one year to learn he wanted to be his own boss. He returned to work as a certified nursing assistant at the University of Minnesota while building his skills as a grower, starting with a hemp operation a few years ago on a few acres his parents own northwest of the Twin Cities.

Over the past six years, Tapelt said he’s invested about $40,000 working toward this goal, designing a logo, creating packaging and purchasing equipment like grow lights for indoors. He attends conferences and online lectures. He has also put hard-earned money toward getting initial state approvals.

Lately he has been mastering the art of growing quality marijuana plants outdoors. A friend’s yard in the northern suburbs is host to six of his legally permitted personal-use plants. He is perfecting them to develop profiles around taste, smell, look and feel.

The dream scenario: A retail shop with at least 20 employees. As he looks for financing for his operation, Tapelt thinks he may need at minimum $850,000 to get off the ground and set up a half-acre site where he can cultivate outdoors. He envisions getting there in the next few months before winter sets in.

“I feel I’ve got a good shot,” Tapelt said. “I’ve gotten this far.”