As we all know well, the lack of access to banking remains a large impediment in the marijuana industry. And as we’ve previously blogged here, here, and here, marijuana banking continues to be a hot and important topic as private financial institutions slowly but steadily take advantage of the 2014 FinCEN guidelines. The guidelines, however, are difficult to actually implement. And though some of our financial institution clients are successfully navigating their way through those guidelines to provide financial services to marijuana businesses, most financial institutions continue to avoid the industry, and more options for banking are needed in the industry on the whole.
So, we’re pretty excited to write about developments in Nevada that might further enable thrift banks in the Silver State to provide financial services to medical marijuana establishments (MMEs) here.
Specifically, Nevada’s Assembly Bill 480 would allow Nevada thrift companies to obtain their required deposit insurance from private carriers, rather than from the FDIC, potentially reducing the regulatory hurdles needed to provide financial services to MMEs. Traditional financial institutions must have their deposits insured by the FDIC. Without access to federal guarantees, nationwide banking is effectively impossible for much of the pot industry. However, thrift companies (and credit unions) have the option of having their deposits insured either by FDIC/NCUA or a “private deposit insurer” approved by the Nevada Financial Institutions Divisions (FID) Commissioner. In turn, AB 480 is a fairly significant development where any removal of federal authority from the banking process makes life easier for financial institutions wanting to do business in the marijuana industry.
So, what is a thrift company? Traditional banks generally offer a host of services to the general consumer, including taking deposits in the form of checking and savings accounts, making loans, and providing investment opportunities for its customers. A thrift bank, on the other hand, mainly focuses on just taking deposits for checking and savings accounts.
Before you think starting a Nevada thrift bank may be the next best marijuana-related investment, you should know that like most financial institutions, they’re not easy to start and manage, they’re rife with state regulation, and they’re very pricey to get going and maintain.
Generally, a thrift bank must submit an application to the state, which must be completed within twelve (12) months, after which the thrift bank receives authorization from the Commissioner of Financial Institutions. Authorization is only available once the applicant proves the business was formed in accordance with Nevada laws and is approved to engage in business in the state. Next, the applicant must pay the requisite filing fees which include not more than $2,000.00 for the principal office and not more than $300.00 for each branch office. The applicant must also pay additional expenses incurred in the process of the state’s investigation, and as the Commissioner deems necessary.
The Commissioner begins the investigation and examination process following submission of the applicant and licensing fees. Applicants will be reviewed for: (1) character, reputation and financial standing of the organizers or incorporators; (2) the need for a thrift company or an additional thrift company, as the case may be, in the community where the proposed licensee is to be located, giving particular consideration to the adequacy of existing thrift company services and the need for additional services of this kind in the community; and (3) the ability of the community to support the proposed licensee, giving consideration to competition offered by existing licenses, whether a thrift company has previously operated in the community, and opportunities for the success of the business.
Additionally, the Commissioner will not approve a thrift bank application unless it can ascertain that the public convenience and advantage will be promoted by the establishment of the proposed corporation, the corporation is being formed for no other purpose than the legitimate objectives contemplated by state law, the proposed capital structure is adequate, and the financial responsibility, character and general fitness of the proposed officers, directors, stockholders and other investors are “such as to command the confidence of the community and to warrant belief that the business will be operated honestly and fairly within the purpose of this chapter, and that the proposed officers and directors have sufficient banking, industrial loan.”
Finally, Nevada thrift companies must provide the Nevada Financial Institutions Division (FID) with a fidelity bond on each officer, director and employee for at least $100,000. And the officers and a majority of the directors must also be citizens of Nevada. The President of the thrift must have at least ten years experience in a regulated financial institution and the manager at least two years experience.
The FinCEN guidelines, found here, must still be followed, of course, but acting as a thrift company isn’t itself an impediment to compliance. Presumably, where an MME is robustly regulated by the State of Nevada and lawful under state law, as long as the thrift company also adheres to the FinCEN guidelines, getting deposit insurance from a private carrier really shouldn’t raise any red flags.
Certainly, there are no guarantees that investors in Nevada will attempt to establish thrift banks or that private deposit insurance companies will rush to offer deposit insurance to thrift institutions. However, Nevada appears to be one of the first states willing to address marijuana banking in a way that might actually work (unlike Colorado), which hopefully will lead to more effective banking regulations and solutions for MMEs that desperately need them.
Anyone want to open a Nevada thrift bank?