Just two months after Oregon-based MBank pulled back on a promise to work with the marijuana industry in Colorado, the $170 million institution said it is dropping its cannabis clients entirely.
CEO Jef Baker said MBank doesn’t have the “resources necessary to manage the compliance” requirements for banks maintaining accounts with legal marijuana businesses.
But others familiar with the bank’s situation said the move from the marijuana space was forced by regulators who recently audited bank records over an extended period, eventually downgrading the institution’s rating and indicating marijuana deposits might be too risky to handle.
The bank has been under scrutiny because of a prior consent agreement with federal regulators that was the result of financial problems it had a few years ago. But now, regulatory examinations that normally were taking about two weeks suddenly were taking six, according to people familiar with that process.
Baker refused to comment about regulator examinations, which are typically shielded from public view.
But he did say he thought marijuana deposits would be a good match for the bank. Medical marijuana is legal in Oregon and neighboring Washington. Recreational sales and use are legal in Washington and will become legal in Oregon on July 1.
Nevertheless, Baker is pulling back.
“I can’t do a thing about it,” Baker said of the bank’s change of heart.
He acknowledged the bank’s public pronouncement that it was working with the marijuana industry — and the subsequent reversals — could leave an unfavorable impression about MBank’s management.
“It clearly questions our leadership, of course, and we were comfortable moving into this sector,” Baker said, “but ultimately it was the right thing to do.”
Baker said the community bank had acquired about 75 business accounts since it began taking on pot clients in September. The accounts will be closed within the next few weeks.
The businesses accounted for about $5 million in deposits, Baker said, and they likely would have to take their funds in cash.
“That’s the saddest part,” Baker said. “I can’t think that a cashier’s check would be of any help to them.”
The announcement came the day after Federal Reserve Bank of Kansas City president Esther George met about 20 marijuana businessmen, politicians and industry leaders in Denver to hear their concerns about the lack in banking services.
Though the meeting brought no solutions, it did highlight how pot-shop owners are forced to work in cash, often shuttling piles of money from one bank to the next as accounts are repeatedly opened and closed.
Marijuana remains illegal under federal law, and banks could face money-laundering charges if they aren’t vigilant in keeping track of every marijuana client’s moves.
It’s the second time Baker has had to back away from public pronouncements that his doors were open for pot businesses.
In January, he told The Denver Post he was prepared to take on Colorado clients, an announcement that immediately brought about 60 inquiries for accounts.
However, Baker rescinded the decision a week later, saying it was due to a lack of infrastructure to handle the volume of clients. Others familiar with the issue said it was because of regulatory pressures, which brought questions from congressmen demanding to know why they were putting the hammer down.
The bank limited its marijuana business to three branches in and around Portland, Ore., with some accounts from neighboring Washington.
Though MBank had a long history of financial problems, including threats to close its doors if it didn’t shore up its balance sheets, it remained open, though under a federal consent order.
Baker said he plans to revisit the industry when the terms of the consent order are eventually fulfilled.
“It won’t get us; it will keep us down for a bit,” Baker said. “I’ll bide my time until we can get out from under the thumb, and maybe we can be flexible again.”
David Migoya: 303-954-1506, firstname.lastname@example.org or twitter.com/davidmigoya