Cannabis Banking is Complicated – Just Look at Puerto Rico

Puerto Rico’s Senate has advanced a Bill aimed to facilitate their banking institutions’ ability to deal with new demands on the financial system, like cannabis. Yet their efforts are complicated by overarching regulatory considerations, lack of consumer or corporate trust, and the inconveniences of handling a new sector that often teeters on the edge of legality, like cannabis.

Senate Bill 421, which proposes to expand and strengthen the services provided by the Puerto Rico Economic Development Bank (BDE) to individuals and corporations by establishing deposit accounts, services, and banking support for emerging industries such as cannabis, does not have the endorsement of commercial or government banks. Not good news for a sector like cannabis already mired in legal and financial complications.

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Puerto Rico Bill Lacks Even Banking Support

Luis Alemañy González, president of the BDE, stated that he does not endorse the approval of the bill as it is currently drafted. He explained that they are currently reviewing the bank’s operations, evaluating the best resources available, and looking for alternatives to improve the institution’s financial situation. All this with the purpose of presenting a comprehensive plan that will allow the BDE to continue providing services in an efficient and sustainable manner.

“We understand that the project presents an alternative to the bank’s operation while seeking to develop other strategies to promote economic activity. However, it is necessary to complete the process we are going through and present a restructuring plan that takes into consideration the institution’s current finances and the steps to follow so that it continues to be sustainable in the future,” said Alemañy.

He admitted that the process in which they are immersed is not an obstacle to the presentation of legislation that will support them in the new direction, nor has he ruled out the possibility of the Puerto Rico bank receiving deposits from private entities, whether from commercial (like nascent cannabis businesses) or consumer clients.

“We continue to focus on analyzing all possibilities that will help the bank move forward so that it can continue its mission of fostering Puerto Rican economic development. On other occasions, the bank has taken risks that private banks were not willing to assume, resulting, in some instances, that they did not bear the expected fruit,” said the BDE president at a time when he reiterated his opposition to the project.

An Ambitious Bill Leaves Puerto Rico Cannabis Entrepreneurs Uncertain

For her part, Zoimé Álvarez Rubio, executive vice president of the Puerto Rico Bankers Association (ABPR), said the bill is an ambitious and broad measure that initially raises several questions, especially for cannabis entrepreneurs.

She noted that there is compliance with the Bank Secrecy Act, risk management, and the availability of the minimum capital required to serve emerging industries in compliance with state and federal regulations to consider.

“Likewise, it could create uncertainty at the implementation, operational, and practice level. We cannot forget the past experiences regarding government banks in Puerto Rico,” Alvarez added.

In the case of commercial banking, she explained that it is a federated bank governed by applicable federal and state laws and regulations. In addition, it deals with the New York Federal Reserve.

“Regardless of the fact that cannabis businesses have a presence in most states, it is still a matter of balancing business risk and the uncertainty that exists between state and federal,” she said.

She said the procedural guidelines of the Financial Crimes Enforcement Network (FinCen) -a U.S. Treasury Department office that collects and analyzes information on financial transactions to combat money laundering, terrorist financing and other domestic and international financial crimes- and the guidelines of the Puerto Rico Commissioner of Financial Institutions, “do not relieve commercial banks of responsibility for the risk of non-compliance of any of the emerging businesses that the current legislative measure wishes to address.

Reason for the Measure

S. 421, filed by Senate President José L. Dalmau, was requested by the Puerto Rico Chamber of Commerce (PRCC).

The organization understands that the lack of banking and financial services to emerging industries hinders their economic growth.

“The situation causes transactions to be commonly handled in cash. This increases the possibility of money detour and tax evasion. The situation cannot wait any longer if Puerto Rico is interested in capitalizing on these industries,” said Juan Carlos Agosto, president of the CCPR.

In the case of medical cannabis, there are only two cooperatives that provide limited money deposit services.

“In the past, government banks have been an alternative when newly created industries do not find support in the private sector,” added Teresita Santiago, president of the Cannabis and Hemp Committee of the CCPR.

As an example, she mentioned the Bank of North Dakota and said it can serve as a starting point for the BDE to follow that strategy. “This will cause the commercial banking and cooperative sector to feel confident in the emerging industries in Puerto Rico,” she said, potentially reassuring cannabis-based entrepreneurs. Though doing little to solve the immediate problem of complex banking laws and systems.

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(Featured image by  Luis Santiago via Unsplash )

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First published in ElVocero, a third-party contributor translated and adapted the article from the original. In case of discrepancy, the original will prevail.

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