Why Lead Bank joined the thin ranks of cannabis bankers

Why Lead Bank joined the thin ranks of cannabis bankers

March 24, 2021

Kansas City-based Lead Bank has joined only 683 other banks and credit unions nationwide to work with marijuana-related businesses, thanks to a partnership with fintech company Dama Financial.

San Francisco-based Dama Financial offers a payment system to help state-legal cannabis companies pay bills and taxes electronically and also offers a cash pickup and deposit service. Dan Henry co-founded and is chairman of Dama Financial. He is widely known in the Kansas City area for his past role as president and COO of Euronet Worldwide Inc. and current role on the board of Rx Savings Solutions.

As Dama was developing its platform, Henry contacted Josh Rowland, vice chairman and CEO of Lead Bank.

“We had a great series of conversations,” Rowland said. “It was a mutual recognition that we’re trying to find ways to innovate in financial services. I also recognized that these were some really smart people putting a very effective program together for an underserved market with a lot of stigma attached to it. Our job is to separate the hype and the anxiety from the reality and come up with something meaningful, fair, transparent and compliant.”

Rowland said he had conversations with the Federal Deposit Insurance Corp., the state of Missouri and others involved in banking regulation and compliance. Because medical and recreational marijuana remains officially illegal at the federal level, Rowland said none of them endorsed banks taking any action in the marijuana industry.

Clearly, Rowland said, this isn't a road for faint-of-heart bankers. However, a process in place since the Obama administration allows banks to provide services but report marijuana related-financial activities for state-legal operations to regulators.

“They have been receiving reports from us and acknowledging those reports on the Dama business,” Rowland said. “As far as we know, they’ve never raised any issues with it. We feel we have good, clear rules and expectations. We apply those and report on our activity, and so far so good.”

As a business, Rowland said the cannabis industry is similar in many ways to other highly regulated industries. There are a lot of compliance issues to deal with, but in the end, it can be a market that’s reliable, stable and understandable, enabling the industry to make products, source materials, cover bills, pay taxes and provide good jobs. But the absence of banking services makes it an all-cash business, raising the risk for crime and fraud.

Without banking services, Rowland said state-legal marijuana businesses have to drive to the capital and literally stand in line with bags of cash to pay taxes. That’s unsafe for owners and inefficient for states.

Situations like this prompted the SAFE Banking Act to be reintroduced in Congress on March 18. The act would federally legalize marijuana banking. That would be a game-changer for the industry, bringing plentiful new competition to institutions like Lead Bank that are in the market now.

“If cannabis is legalized as we expect it to be, then certainly there will be other entrants into the market,” Rowland said. “What I believe, though, is that it will continue to be a highly regulated and supervised market, where transparency and compliance will still create costs that will have to be handled by the industry. To the extent that our work with Dama has made us better at managing those additional costs of working within a highly regulated industry, I think we have a strong value proposition that will last.”

Original article by the Kansas City Business Journal here: https://www.bizjournals.com/kansascity/news/2021/03/24/lead-bank-cannabis-marijuana-dama-financial.html

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