How Cogent Bank treats cannabis account holders like ‘any other customer’
When Cogent Bank set out to serve the legal cannabis industry in Florida, its mission was to serve cannabis-related businesses the same way it does its other commercial clients.
“We’ve seen other financial institutions in this space not doing this,” said Chris Hartman, director of deposits at Orlando-based Cogent Bank. “They basically took deposits and offered accounts without all the other features and benefits that customers wanted. So we felt very strongly that we had to do this and not pariah this industry.
Due to marijuana’s status as a federal Schedule 1 drug, most cannabis-related businesses have had to operate on the fringes of the financial system. With major payment processors and big banks reluctant to work with the industry, most dispensaries only accept cash.
The cash-rich nature of the industry, in addition to the stringent compliance and regulatory hurdles associated with banking, makes the space difficult for banks to navigate.
Cogent Bank did due diligence before rolling out its cannabis banking program and kept regulators updated throughout the process, Hartman said.
“We have been completely transparent with our regulators and have obtained full board approval. And once we got up and running, we were pretty confident that our program was solid,” she said.
To help expand the program’s cannabis banking program, Cogent Bank has partnered with Green Check Verified, a fintech that works with banks to provide compliant cannabis banking services.
“We knew we had to be [cannabis-related businesses’] go-to bank for everything, and when we didn’t have something they needed, we turned to partners who could provide that,” Hartman said.
Green Check’s flexibility to work with businesses that use a wide variety of point-of-sale systems allows the bank to monitor transactions and feel comfortable ensuring its customers comply with national regulations, Hartman said. .
The ability to use a third-party vendor to expand the bank’s cannabis banking services is critical, she said.
“For a bank our size, a billion dollar bank, we can’t develop these things on our own,” Hartman said. “So given our strong onboarding process and our due diligence process, and Green Check being part of that – we also have a very capable compliance officer who is the gold standard in this – once they’re embedded, we don’t want to treat them any differently than any other customer.”
Cogent Bank offers treasury, mobile deposit, online banking, online transfers, access to the automated clearing house network and cash processing services to its cannabis-related customers.
Cash handling is an important service, Hartman said, because the bank does not take cash at its banking centers, due to the responsibility of accepting large amounts of cash.
“And frankly,” Hartman added, “sometimes you can smell the cannabis on the money and we don’t want our banking centers smelling like marijuana.”
As part of its mission to approach cannabis banking the same way it does its other lines of business, Cogent Bank has “dipped its toes” into marijuana home loans, said she declared.
However, cannabis loans still have their limitations.
“We primarily provide home loans to commercial real estate owners who lease space to dispensaries,” Hartman said. “We found that other banks weren’t even willing to do that because they were concerned that if a developer developed a property and leased it to marijuana and then it was closed, they would lose their source of income to repay the loan.
Cogent has been lending to commercial real estate owners who have been renting to cannabis-related businesses for several years now, but is aware of a growing need outside of this area, Hartman said.
“A cannabis company’s greatest asset is its license, and we always struggle on that end because we don’t think we can encumber the license or force a sale,” she said.
Identifying what the bank might take as collateral is a challenge, Hartman said.
“Obviously we don’t want to be in the business of growing marijuana, so land or facilities that process marijuana isn’t necessarily something we would want as collateral,” she said. “We could take a building. We are in the process of building that, but we are not 100% there yet”.
“A growing community”
With its cannabis banking program, Cogent Bank sees opportunities beyond providing services to businesses that touch cannabis, such as serving industry vendors and ancillary businesses that are also often excluded from the banking space, Hartman said.
“Based on the data we have seen, the cannabis industry is very lucrative and growing rapidly. We believe this is a great opportunity to not only fund licensees, but also suppliers who support them,” she said.
With Cogent’s willingness to fund the industry comes additional opportunities to serve accountants, attorneys and manufacturers who work with cannabis clients, Hartman said.
“It’s a growing community and we feel it provides us with deposits as well as lending opportunities,” she said.
Cogent has branches in North, Central, and Southwest Florida, where cannabis is legal for medical purposes.