Twin City Bank: A leader in banking cannabis

Neil Zick, Twin City Bank’s CEO, and Judy Bartlett, chief operations officer and compliance and BSA officer, have worked with customers like Marijuana Mart for more than five years. Photos: Leah Nash

Twin City Bank in Longview, Wash., has been serving marijuana-related businesses for more than five years, making it a veteran in such a new—and quickly growing—industry.

By Katie Kuehner-Hebert

Name: Twin City Bank
Assets: $58 million
Location: Longview, Wash.

Twin City Bank in Longview, Wash., has been banking marijuana-related businesses (MRBs), also referred to as cannabis-related businesses (CRBs), for five years with the encouragement of state regulators and guidance from the Cole Memorandum and the Financial Crimes Enforcement Network (FinCEN).

In the spring of 2014, Neil Zick, the $58 million-asset community bank’s CEO, and Judy Bartlett, its chief operations officer and compliance and Bank Secrecy Act (BSA) officer, attended a meeting with speakers from FinCEN, the Washington Department of Financial Institutions and the Washington State Liquor Control Board, now known as the Washington State Liquor and Cannabis Board. The purpose of the meeting? To discuss how the agencies were going to help banks serve companies that grow, process and/or sell marijuana ahead of the July 2014 opening of newly licensed MRBs in Washington state.

Quick stat

$1.37 billion

The value of Washington state’s cannabis industry in 2017

Source: Washington State Liquor and Review Board

“The agencies laid out the framework for what information they would be able to provide that would help us in our compliance effort to monitor the activity of whatever customers we decided to take on,” Zick says.

Buoyed by the support of these agencies, Twin City Bank executives and board members discussed the possibility of serving MRBs. “We thought it was a way to garner more deposits and increase revenue for the bank through service fees,” Zick says. “The board didn’t have any moral issues with banking marijuana customers, so we proceeded to start organizing our thoughts on how we were going to do this.”

The board decided to get into the business slowly, initially authorizing just 10 MRB accounts and limiting the total dollars within those accounts to 20% of the bank’s overall deposits. Twin City Bank then developed a specialized payment structure that involved a higher-than-normal service fee. Finally, in July of 2014, Twin City Bank opened its first MRB account with a retail marijuana dispensary. Zick adds: “We started getting inquiries from other MRB retailers, as well as from producers and processors.”

Zick and Bartlett helped launch Twin City Bank’s marijuana banking program.

Learning cannabis compliance

Twin City Bank’s compliance program relies on guidance from the Cole Memo, published in 2013 by James Cole, then the U.S. deputy attorney general. While then-attorney general Jeff Sessions rescinded the memo in 2018, FinCEN and Washington’s Department of Financial Institutions are still using the guidelines in their oversight of banks serving MRBs, Zick says.

“You have to be able to monitor all of the red flags of violations that were listed in that memo, such as selling to minors,” Bartlett says, adding that banks “have to have proper policies and procedures in place to track the sales.”

Another guideline laid out in the memo is tracking proceeds from MRB sales to be sure that cash being deposited from the sales aligns with what is being reported, Bartlett says.

“It took time to set up our compliance program in the beginning, and we made adjustments in 2015 when medical marijuana became legal, as that entails more licensing requirements,” she says.

While Washington voters approved a ballot initiative to legalize medical marijuana back in 1998, the issue was stymied for years until state lawmakers passed the Cannabis Patient Protection Act and Marijuana Taxation Reform in 2015, creating a state licensing and regulation program for medical marijuana.

After Twin City Bank’s board subsequently raised the limit to 50 MRB accounts, Bartlett and her team improved their compliance program and BSA processes to grow with those developments.

Such changes reflected regulators’ requirements for more documentation, including updated policies and procedures about how the bank was monitoring its expanded number of MRB customers.

“They have the same goals. They want to have a successful business. They want to make a profit,” he says. “Even though federal regulators may look at them as criminals for selling a product that is illegal federally, from our perspective, these customers aren’t doing anything different from our other customers.”

“From our perspective, these customers aren’t doing anything different from our other customers.”
—Neil Zick, Twin City Bank

Lack of federal protections

Today, Twin City Bank only provides deposit services to such customers, but it would consider offering loans if Congress passes the Secure and Fair Enforcement (SAFE) Banking Act. Approved by the House in September, the Senate had yet to take up the bill as of mid-November. The bill would establish a federal safe harbor for financial institutions and ancillary companies that serve MRBs in states where marijuana is legal.

“Ultimately, if the federal government would declassify marijuana so that it would no longer be a Schedule 1 drug,” Zick says, “then I think we would definitely get involved in lending to marijuana-related businesses.”

Until then, there’s too much ambiguity in the case of a loan default, he says, adding: “Would the federal government be able to put a lien and seize an MRB property that had been put up for collateral on a loan? They really couldn’t do anything with the property because they couldn’t get a clear title, but it would just cause a huge headache for us for several years unwinding this.”

Best practices for banking MRBs

For other community banks considering banking MRBs, the team at Twin City Bank says a best practice is to establish an open dialogue with regulatory agencies.

“Just work with regulators. It’s a learning process for everyone,” Bartlett says. “Help them understand the business and how it works. There are always new people at the regulatory agencies who are still learning, and we’re also still learning.”

“Just work with regulators. It’s a learning process for everyone.”
—Judy Bartlett, Twin City Bank

Ultimately, Twin City Bank’s team realized that MRBs are very similar to the bank’s other business customers, Zick says.

Katie Kuehner-Hebert is a writer in California.