Aspiring Marijuana Entrepreneurs Battle Banking Challenges in Minnesota

Navigating the Challenges of Banking for Marijuana Businesses in Minnesota

Elliott Tapelt estimates that his conversation with an assistant manager at his credit union lasted only three seconds. He asked what services would be available to help him run a marijuana microbusiness he wants to open by October. The response was straightforward: “We don’t do that kind of stuff.” Tapelt, 39, of Minneapolis, is trying to break into Minnesota’s emerging recreational marijuana market after receiving preliminary license approval from the state this year.

Minnesota has been gradually implementing its recreational marijuana program over the past two years, and now there are five fully licensed marijuana business owners outside of tribal dispensaries, including one working toward retail sales. Entrepreneurs like Tapelt are working to set up their operations—developing business plans, seeking investors, finding real estate, and obtaining local approvals. However, securing financial backing and reliable banking services remains a significant challenge.

While it's easier today than when Colorado and Washington first legalized recreational use, getting a bank for a marijuana business is still not straightforward. Deposit solutions have emerged to handle issues like cash-heavy operations. Although Visa and Mastercard prohibit consumers from using credit cards for cannabis purchases, some dispensaries have found workarounds allowing debit transactions at the counter.

The Legal and Financial Landscape

Despite progress, the federal illegality of marijuana means that loans backed by the Small Business Administration are off-limits, and government-backed mortgages are unavailable. Cannabis businesses are considered high-risk, and most financial institutions avoid offering any form of business lending. Carol Moss, an Edina-based cannabis attorney, noted that clients often need substantial existing assets to secure a loan. Some banks are adopting 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.

The situation hinges on a memo issued during President Barack Obama’s administration, which promised the federal government would not target state-legalized businesses as long as minors couldn’t access them, organized crime didn’t profit, and marijuana didn’t enter illegal markets. “It’s not for the faint of heart,” said Jason Tarasek, a cannabis attorney. “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.”

Legislative Efforts and Industry Risks

Banks and credit unions have long urged Congress to pass the SAFER Banking Act, legislation that would protect financial institutions for servicing state-legalized marijuana businesses. However, the bill has yet to clear Congress. Regardless of state laws, banks must follow strict federal regulations that place marijuana in the same category as heroin. This creates a risky environment for banks, as they could face severe penalties, including asset forfeiture, for providing services to marijuana businesses.

Joe Witt, president of the Minnesota Bankers Association, emphasized that the industry faces “a lot of headwinds” despite state legalization. Credit unions have been taking time to understand the unique risks and investments required to handle marijuana businesses, according to Mara Humphrey, president of the Minnesota Credit Union Network. Other states have provided a roadmap for compliance with the Bank Secrecy Act and Anti-Money Laundering Act, but marijuana businesses still deal with a lot of cash, which can present logistical and security challenges.

Emerging Opportunities in the Market

First Alliance Credit Union, based in Stewartville, Minn., is preparing to onboard its first cannabis-related business members. CEO Brent Rempe said the credit union is taking a slow and steady approach, starting with deposit services, which other financial institutions are unwilling to offer. He believes the market is underserved and wants to fill that role.

Bridgewater Bank, based in St. Louis Park, is also exploring cannabis banking opportunities. After the 2018 Farm Bill removed hemp from the list of controlled substances, the bank began developing programs to serve clients in Minnesota’s legal marijuana industry. Lisa Salazar, the bank’s chief operating officer, said the program is designed to consider businesses operating in all channels of the new marijuana industry.

A Personal Journey Toward Entrepreneurship

Tapelt, the aspiring marijuana business entrepreneur, remains optimistic about his chances of forming a successful venture despite the banking challenges. After finishing college with a degree in chemistry, he realized he wanted to be his own boss. He worked as a certified nursing assistant while building his skills as a grower, starting with a hemp operation on a few acres his parents own northwest of the Twin Cities.

Over the past six years, Tapelt has invested about $40,000 in his goal, designing a logo, creating packaging, and purchasing equipment like grow lights. He attends conferences and online lectures, and has put hard-earned money toward getting initial state approvals. Recently, he has focused on mastering the art of growing quality marijuana plants outdoors, using a friend’s yard in the northern suburbs to perfect them.

His dream scenario is a retail shop with at least 20 employees. As he looks for financing, Tapelt thinks he may need at least $850,000 to get off the ground and set up a half-acre site for outdoor cultivation. He envisions achieving this in the next few months before winter sets in.

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