UNITY — Once a month, Dawson Julia walks into Wal-Mart to pay his $3,000 electric bill in cash.

His medical marijuana caregiver business occupies a prominent location in a 14,000-square-foot warehouse in Unity, and he gives public testimony to the Legislature on marijuana issues. But when it comes to managing the finances of his business, Julia leans heavily on cash transactions and tries to use his bank account as little as possible.

Tim Smale, owner of the Remedy Compassion Center medical marijuana dispensary in Auburn, said his business has been bounced from bank to bank over the last few years – including one bank he wouldn’t name that, because of his involvement with marijuana, shut down a personal checking account he had used for 20 years.

And the Medical Marijuana Caregivers of Maine, a trade group that neither grows nor handles the drug, couldn’t issue paychecks to its employees when its account was abruptly dumped by Northeast Bank in 2013 – simply because it had the word “marijuana” in its title.

Catherine Lewis, the group’s board chairman and director of education, says caregivers are the victims of a disconnect between state law, which treats medical marijuana as perfectly legal, and federal laws, which treat the drug as a prohibited substance, exposing federally chartered banks to the threat of money-laundering penalties for handling the proceeds of a marijuana business.

“Basically, what they’re doing is making criminals out of people who are trying to do things the right way,” Lewis said. “It comes down to the federal government not recognizing these are legitimate business people, not criminals.”

The banking challenge means medical marijuana businesses can’t accept credit or debit cards from their customers, often can’t write checks for their payroll or business expenses and can’t borrow money through the banking system. Instead, the businesses run on large amounts of cash, raising concerns about security and accountability.

Tim Smale, who owns Remedy Compassion Center, a medical marijuana dispensary in Auburn, says he has periodically received notices that the bank account for his business is being closed because it is selling pot. “Those are unimaginable ways to operate a business,” he said. Whitney Hayward/Staff Photographer

A number of caregivers and dispensary owners declined to comment to the Maine Sunday Telegram on whether they had banking relationships; others wouldn’t give the names of their banks for fear that the publicity would lead to an account closure.

A few have found state-chartered banks or credit unions that are more willing to do business, but the options are limited. It’s a problem that could get much bigger after November, when Mainers are likely to vote on a ballot question that, if approved, would add a network of retail outlets for recreational marijuana to the medical marijuana industry.

It’s also a problem that goes far beyond Maine, affecting every state where voters or legislators have approved access to marijuana for medical or recreational uses. The issue is fueling a drive for national legislation to loosen restrictions on banking.

A survey released recently by Marijuana Business Daily, a national trade publication, found that 60 percent of companies in the cannabis industry don’t have bank accounts. Among businesses that actually handle marijuana plants, 70 percent report they operate without traditional banking services, according to the survey of more than 400 businesses, which was the first of its kind.

“It is a massive issue and it’s industrywide,” said Taylor West, deputy director of the Washington, D.C.-based National Cannabis Industry Association. “It affects businesses in every state that has some form of legalized marijuana. It affects businesses that directly handle the plant, but also businesses that serve the businesses handling the plants.”

While marijuana is legal in some form in 23 states and the District of Columbia, it remains illegal under federal law. It is classified as a Schedule I drug, the class that includes the most dangerous drugs, including heroin and ecstasy. Because of its status under federal law, banks and credit unions are reluctant to work with marijuana-related businesses.

The problem is particularly acute in Western states that have legalized recreational marijuana and racked up millions in sales. In Colorado, home to a $700-million-a-year marijuana industry, owners of many marijuana businesses are running all-cash operations. Marijuana businesses that can’t open bank accounts report hiring armed guards to drive bags of cash to secret storage lockers. Before bringing bags of money to grocery stores to buy money orders or paying suppliers in cash, they’ll wash the bills or douse them in Febreze, an air freshener and deodorizer, to mask the smell of marijuana.

THE BURDENS ON BUSINESSES

Julia, the caregiver from Unity whose business is called EastCoast CBDs (short for cannabidiol, the compound in cannabis with the highest medicinal value), says he hasn’t run into all of the problems he hears other Maine caregivers discuss. But he said he was denied a loan once the bank found out the nature of the business he runs with his wife and mother.

Instead, Julia found a seller willing to finance the former creamery he bought in Unity two years ago. When he recently needed a loan to add another grow room, he bypassed the bank and borrowed money from an acquaintance.

“As soon as they knew what we were going to use the building for, that was the end of that project,” he said of his bank. “It’s a nightmare if you don’t have funding to get it going.”

Dawson Julia, a medical marijuana caregiver in Unity, eschews using his own bank account for his growing business, which means having to pay his relatively high electric bills in cash. Shawn Patrick Ouellette/Staff Photographer

Julia said he does have a bank account he uses for some aspects of his business, but he declined to identify the bank for fear that it would cancel his account.

Smale, the Auburn dispensary owner who is president of the Maine Dispensary Operators Association, said banking is also stressful and challenging for the operators of Maine’s eight dispensaries. Most – if not all – have had bank accounts canceled and must accept only cash from patients, he said.

At least once a year, Smale gets a letter or phone call from his bank notifying him that his dispensary’s account is being closed because it sells marijuana. Each time, he says, he’s forced to scramble to find another bank willing to take on his business.

“It’s been miraculous timing for us to always have a bank when we needed one. There have been times when it’s been very frightening to face the possibility that we can’t do payroll or pay our vendors or have to pay our monthly sales tax in cash,” Smale said. “Those are unimaginable ways to operate a business.”

Lewis, at the caregivers association, says many caregivers are reluctant to talk publicly about the issue because they don’t want to attract attention from their banks, make themselves targets for robbery or draw extra scrutiny from regulators.

“They’re having a real hard time,” she said. “If they are honest and upfront that they are a marijuana business, most banks say absolutely not. They either just can’t get a bank account or they have to use a personal bank account instead of a business one.”

Lewis said that when Northeast Bank closed the association’s account in 2013, the group scrambled to find another bank – it switched to cPort Credit Union after going through an interview process – but that took time, forcing a two-week delay in payroll.

Northeast Bank officials said the bank follows federal banking laws but declined to comment further, instead referring questions to the Maine Bankers Association, the industry’s trade group.

A DESIRE FOR ‘FEDERAL CLARITY’

Christopher Pinkham, president of the Maine Bankers Association, said banks are reluctant to work with marijuana businesses because of the burden of complying with federal guidelines. Those guidelines recommend that banks verify that marijuana-related businesses are licensed to operate in their states, understand the activities of the business and monitor for suspicious activity.

“It’s a level of scrutiny beyond what any bank would have as part of its business relationship,” Pinkham said.

But he says there is interest among banks in Maine in working with medical marijuana-related businesses.

“We would very much like to have federal clarity on what we would have to do to engage in this business. It would be an opportunity for many banks,” Pinkham said. “In the meantime, it’s awkward for the growers and dispensaries.”

A national expert on the topic of marijuana and banking echoed Pinkham’s concerns.

“If you look at the guidance, all it says is that if you follow this guidance, they might decide prosecution or regulatory action isn’t warranted. It might be OK or it might not,” said Julie Anderson Hill, a University of Alabama School of Law professor. “Banks can hope that federal prosecutors leave them alone and that regulators that have an interest will leave them alone or overlook it. The bottom line is, it’s still money laundering to accept that money and will be as long as federal law says it is illegal.”

MAINE BANKS, CREDIT UNIONS STEP IN

While federally chartered banks are reluctant to work with marijuana-related businesses, a few local banks and credit unions have decided it’s a risk worth taking. Representatives of the banks say they have had no issues with state regulators.

“It’s an area we see as growing and in need of business services,” said Mike Foley, vice president of sales and business development for Five County Credit Union.

Foley said the credit union began providing bank accounts to dispensaries and caregivers within the past couple of years. While the credit union does have some federal oversight, it is primarily regulated by the state and works closely with its regulators to make sure it is in compliance, he said.

“We did approach it with some caution,” said Foley. “As it became clearer that these are types of businesses that are only going to grow, we did our due diligence and made sure we are in compliance with all of the regulatory guidelines.”

Gene Ardito, CEO of the cPort Credit Union, says he decided two years ago, with the support of the board, to open accounts for state-approved medical marijuana businesses. “We felt it was people helping the community,” he said. “They do need to have a place to do their business and deposit their funds.” Gordon Chibroski/Staff Photographer

Gene Ardito, CEO of Portland-based cPort Credit Union, said he decided two years ago, with the support of the board, to open accounts for marijuana businesses once the operators go through a lengthy vetting process. Factors in the decision included the value of medical marijuana to patients and the public safety issues raised by large amounts of cash.

“We decided we should provide these accounts to businesses that are approved by the state because we felt it was people helping the community,” he said. “They do need to have a place to do their business and deposit their funds.”

Ardito said marijuana businesses that want to join the credit union are first interviewed by the director of compliance, who is also an attorney. They also must provide paperwork that shows approval from the state to operate. He would not say how many marijuana-related businesses bank with cPort, but characterized it as a “small number of accounts in the grand scheme of things.”

“We feel like we’re innovative in many respects,” he said. “We’re not afraid to tackle something that might be more challenging to administer. We made this decision based on what we thought was good for the community.”

LAWSUITS, LEGISLATION FORCE THE ISSUE

Banking experts say a pending federal lawsuit in Colorado could push the courts to resolve the ongoing conflict between state and federal marijuana laws. And, they say, Congress will be under increasing pressure to change laws to address the issue as more states legalize recreational marijuana. Maine is expected to be among about a half-dozen states to vote on legalization in November.

In the Colorado lawsuit, the Fourth Corner Credit Union in Denver applied in 2014 to the Federal Reserve for a master account, which would allow it to open its doors to serve the marijuana industry. The application was rejected, leading to a legal appeal.

In a hearing last week, U.S. District Judge R. Brooke Jackson said he sympathizes with pot businesses and that memos from the Treasury and Justice departments don’t solve the problem. He called the federal guidance on marijuana money a “nothingburger,” meaning it doesn’t resolve the federal-state conflicts caused by legalizing pot, according to The Associated Press.

Jackson did not disclose a timeline for handing down a decision in the case.

Congress also may weigh in on the issue with a proposed bill that would provide a safe harbor to banks that work with marijuana businesses. The Marijuana Businesses Access to Banking Act of 2015 would grant immunity from federal prosecution to banks that work with marijuana-related businesses in states that have legalized marijuana.

The Senate bill, sponsored by Sen. Jeff Merkley, D-Ore., was referred to the Committee on Banking, Housing and Urban Affairs. A House version of the bill, sponsored by U.S. Rep. Ed Perlmutter, D-Colo., and co-sponsored by U.S. Rep. Earl Blumenauer, D-Ore., was introduced last year and referred to the Subcommittee on Crime, Terrorism, Homeland Security and Investigations.

“There is absolutely no justification for forcing thousands of legal marijuana businesses here in Oregon and across the United States to do their business on an all-cash basis,” Blumenauer said when the bill was introduced. “Not only does it stifle the ability of people to actually grow their businesses, this is a serious public safety issue that will only continue as more states reform their laws.”