It ain’t easy being green – and any Massachusetts banks that may be curious about the business of banking pot are about to find that out.

Massachusetts voters overwhelmingly approved ballot Question 4 last week, legalizing marijuana for recreational use in the Bay State. But in states where it’s already been legalized, those businesses still deal almost exclusively in cash – with all the attendant risks that brings. Those who handle the cash revenues from marijuana businesses have reportedly gotten into the habit of switching up their routes home and hiring armored cars to handle the money.

While obviously it would be safer to deposit that cash into a bank or credit union, few financial institutions have scrambled to serve this budding market – and it’s not hard to see why. While several states have now legalized marijuana for medicinal and recreational uses, marijuana is still illegal under federal law, and financial institutions that have sought to bank those businesses have run up against legal and regulatory hurdles.

MBank in Oregon and First Security Bank in Nevada, for instance, were ordered by regulators to cease serving marijuana businesses, and the Fourth Corner Credit Union in Colorado was refused a master account with the Federal Reserve, even though it was able to procure a state charter.

“We’ve been told more or less unequivocally that anything that derives its revenue from pot – even financing a commercial building where one of the tenants derives its revenue from pot – we’ve been told from a federal standpoint, hands off,” said Julieann M. Thurlow, president and CEO of Reading Cooperative Bank.

Thurlow had other issues with the ballot question, from the potency of marijuana going to market to how authorities will handle potential cases of impaired driving, but also noted the particular crime risks that may come with a sudden influx of cash-only businesses.

With the state only just beginning to get its arms around the issue of medical marijuana, she commented to Banker & Tradesman ahead of the vote last Tuesday, “I just think it’s too soon.”

Navigating A Regulatory Haze

While there’s nothing technically prohibiting many state-chartered banks and credit unions from attempting to bank marijuana businesses, the general lack of regulatory guidance is a big red flag for this risk-averse industry. The Financial Crimes Enforcement Network issued guidance in 2014 outlining the responsibilities of companies that provide financial services to marijuana businesses, to include reviewing and verifying licensing information and doing their due diligence to ensure those clients aren’t engaging in any suspicious activity.

But that guidance, along with a 2014 memo issued by U.S. Department of Justice Deputy Attorney General James M. Cole, is pretty much all that financial institutions have to go on where pot is concerned.

Marijuana businesses, be they medicinal or recreational, specifically invoke issues with the Bank Secrecy Act, said Lisa Herlihy, director with the consulting firm Shatswell MacLeod.

The firm didn’t set out to develop a specialty in helping banks interested in the medical marijuana space, she told Banker & Tradesman. That happened when one of the firm’s clients approached them about it.

“They had given us a heads up and we suggested they work with the regulators, the state banking commissions, and try to formulate a plan before they even ventured into it,” Herlihy said. “The risk to the bank, obviously, is the regulator comes in and they say ‘cease that business line,’ which in turn affects their profitability if that’s a business line they’ve developed and they’re counting on the fee income.”

The medical space may be marginally easier to work with than the recreational space. In those instances, you know how many medical marijuana cards have been issued and how many clients a business may have, she said. If a medical marijuana dispensary has 10 clients and bring in $10 million in revenue one year, that’s going to be an obvious red flag.

State-by-state legalization of pot may not matter nearly as much as how the justice department treats the issue under a new presidency, Bruce Spitzer, spokesperson for the Massachusetts Bankers Association, said before the vote last Tuesday.

“As far as bankers are concerned, the real issue might be who wins the presidency and how the new president will instruct and persuade the Department of Justice to act,” he said.

It’s an issue the industry is certain to approach cautiously, as social acceptance of marijuana use increases and states figure out how to navigate legalization by the ballot box. For bankers, the puzzle of what to do with legal pot is just beginning.

“I think the bigger question looms, it puts the onus on the bank to understand where their customers are working and who they’re renting to,” Herlihy said. “You may have made a loan 20 years ago, it’s still on the books, you happen to drive by [a commercial client who has leased space to a dispensary], you know that’s your loan, what do you do? It really raises more questions than it answers.”