MILTON, N.Y. (1010 WINS) — As the first New York cannabis businesses work toward the start of sales at the end of the year, some are having trouble getting loans and banking due to the federal prohibition.
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If small cannabis dispensaries and farms can’t access the financial tools necessary to get a new business off the ground, the lack of support could undermine the state’s ambitious equity plan that seeks to prioritize victims of the war on drugs and other disenfranchised groups.
Hepworth Farms, a family-owned organic vegetable farm that is breaking into cannabis cultivation, has been bombarded with banking issues since it started growing hemp in 2017 and then again in 2022 as it grows its first crop of adult-use cannabis.
“All farms do short term loans to have their product produced,” said Gail Hepworth, the CEO of Hepworth Farms in Ulster County near Poughkeepsie. “Farmers are the creditors of the food system. That means we don’t get paid until the broccoli’s in your belly. So all the risk and all we’ve done to get that broccoli into your family’s meal, we haven’t been paid yet. So we need banks, and the banks are pulling away from us because cannabis is not federally legal.”
The bank that the Hepworths have used in the past to grow vegetables broke off its relationship with the farm due to its foray into marijuana.
“There’s a lot of confusion in the banking industry,” said Hepworth. “Farm Credit East, which is supposed to be a bank for farmers and agriculture, who holds the mortgage, is pulling out. We need alternative banking.”
Other financial tools the Hepworths’ relied on also abandoned the farm due to their legal cultivation of marijuana.
“We started selling CBD, and Square, our transactional services, captured our money. They just took $160,000 and wouldn’t pay us back,” said Hepworth.
Many of the largest transactional companies, including Square, Mastercard, Visa, American Express and PayPal, can’t be used to purchase cannabis products, Yahoo reported.
Hepworth said the state has not yet given the farm the tools necessary to counteract the chaotic banking situation they find themselves in, but she’s holding out hope that officials will take action.
“It’s not over yet,” she said. “Even in agriculture as we increase the wages of our workers the state will have to intervene, because there’s not enough margins in farm produce to accommodate all the things that all of us want to have happen.”
New York State has established a $200 million Social Equity Cannabis Investment Fund to be divided up among “equity applicants.”
Included under the “equity applicant” umbrella are service-disabled veterans, minority and women-owned businesses, struggling farms and those who have been directly impacted by prohibition — most notably those with former cannabis convictions.
Those funds could help finance cannabis entrepreneurs who are having trouble getting loans.
In New York City, $4.8 million are budgeted for a Department of Small Business Services team dedicated to supporting fledgling dispensaries.
SBS Commissioner Kevin Kim said the department’s sister agency, the New York City Economic Development Corporation, is looking into using city-owned properties to help dispensaries that are having trouble accessing loans or banking.
“They are really looking for ways to provide capital access for cannabis entrepreneurs,” said Kim. “At the same time, EDC is also trying to study the issue of siting and looking for potentially some city-owned properties that could be utilized and leveraged in helping cannabis entrepreneurs with their businesses.”
The EDC has not yet made public any official plans to give cannabis entrepreneurs access to city land, though a mortgage from the city would certainly go a long way toward a new business’ success.
People who work in legal state cannabis industries can also have their personal financial instruments compromised by banks’ hesitancy around marijuana.
“I have a 401k. I’ve worked over 20 years in corporate America, and one day I get a note, and it says they’re kicking me out of Fidelity because I own a hemp business,” said Hepworth. “Not one penny of that 401k was from cannabis. It was all earned at IBM and at Baer, and they took it away from me.”
Some Cannabis workers have even had home mortgages denied, according to Business Insider.
Equity applicants — especially those who were incarcerated due to war-on-drugs era cannabis convictions — will feel the impact of the lack of banking support more harshly than established business owners with capital on hand.
Banks’ refusal to get involved therefore poses an existential threat to the state’s ambitious equity initiative.
It’s technically legal on a federal level for banks to work with legal cannabis businesses, but complicated federal rules can make those relationships impractical.
Oftentimes banking is therefore made possible by clear and rigorous state licensing and regulatory plans.
California, for example, had most of its industry unbanked until 2018, when it clarified its vague regulatory rules around the sale of cannabis.
New York is already ahead of the curve in this regard.
Its licensure program is specific and rigid, and a bill is currently in committee in the State Senate that would authorize the OCM to share information with banks.
“Federal scheduling of cannabis creates challenges to banking licensed cannabis companies,” reads the bill. “Due to rigorous federal compliance rules and anti-money laundering laws, financial institutions face increased costs and little to no incentive to take on cannabis businesses as clients.”
The “justification” section for the bill says the goal of the legislation is to “improve the 'Know Your Customer' compliance and make it easier and less costly for financial institutions who want to bank cannabis businesses to comply with the federal reporting.”
Despite ongoing trepidation, there are signs that banks are warming up to the cannabis industry.
Small banks have stepped in to fill the vacuum left by industry giants that are still too cautious to get involved, Bloomberg reported.
Green Check Verified, a software company that helps banks deal with cannabis regulations, said the number of banks and credit unions they work with increased 270% in 2021 to around 100.
Recreational adult-use cannabis was legalized in New York in September 2021. While it will take time for local banking infrastructure to coalesce around the New York cannabis industry, these small banks have proven to be a lifeline for some in the new industry.
“There are banks stepping up to the plate and doing the work, the hard work that it takes to do banking,” said Hepworth. “I can give you an example. Wallkill Savings is a local bank that is working hard to provide some services to farmers. All farmers are distressed right now, just about all of us because of this very dynamic situation that we find ourselves in.”
While local banks cautiously start to engage with cannabis, small businesses will need support to get off the ground. If the state fails to offer such support, it risks undercutting its own equity program and seeing big business stamp out local farms and dispensaries.
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