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StaffFebruary 1, 2023
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This story was republished with permission from Crain’s New York and written by C.J. Hughes.

Because marijuana is still illegal at the federal level, landlords who have mortgages with federally chartered banks would seem potentially at risk by having pot stores as tenants, as doing business with a drug dealer, essentially, runs afoul of the law.

But even though federal officials haven’t said outright that they won’t enforce the law, some landlords seem unfazed, as in Greenwich Village, where the city’s second legal dispensary opened on Jan. 24.

“My only concern is: Is marijuana legal? And is the state of New York behind it? And the answer to both of those questions is yes,” said Herman Gans, an owner of 144 Bleecker St., which is home to the new cannabis shop, Smacked Village.

In 2011 Gans and his co-investors borrowed $6.8 million against the 4-story mixed-use building, which cost $4.2 million in 2001, records show. The lender was New York Community Bank, which is based on Long Island and holds $66 billion in loans for properties across the country.

A message left with the bank asking for an explanation of its position on working with landlords with cannabis-selling tenants was not returned by press time.

Cooper Katz, a broker with ABS Partners Real Estate who handled the Smacked Village deal, said it’s his understanding some financial institutions are advising landlords to tread carefully.

“Some of the banks are saying, ‘We’re OK with it,’ and others are not,” said Katz, who was the fifth agent to market 144 Bleecker, a 5,600-square-foot two-level space that had been empty since a Duane Reade closed in 2019. “But it’s definitely a conversation we’re having.”

If some federal lawmakers have their way, those conversations won’t be necessary for much longer. In 2020 the House of Representatives approved the More Act, which would decriminalize cannabis on a national level. And Senate Majority Leader Chuck Schumer of New York has said he expects his chamber to take up the bill soon.


Debra BorchardtJuly 6, 2022
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Bank buildings are becoming attractive locations for cannabis dispensaries, but fortified vaults aren’t the reason. The banking industry has been closing bank branches by the thousands. According to the National Community Reinvestment Coalition, 9% of all branch locations in the U.S. closed between 2017 and 2021 or roughly 7,500 brick and mortar locations. This move really picked up steam during the pandemic when most people migrated to online banking. Bank consolidation and improvements in mobile banking have also contributed to the banks giving up their locations. 

The number of bank locations peaked in 2009 at 92,394 individual physical branches, but then the financial crisis of 2007 set off a spiral of bank failures and consolidation. Banks have closed more than 13,089 branches since 2009. That means a lot of real estate has opened up for new renters.

Travis Goad, Managing Partner of Pelorus Equity Group said, “While this isn’t a widespread trend that we are seeing emerge across the country just yet, we see how a bank’s attributes would be appealing to cannabis retailers. Brick-and-mortar banks tend to have built-in features that could benefit a cannabis retailer. In addition to security features, banks are typically located in high-traffic locations with an interior that is designed to move the flow of foot traffic — and many are currently unoccupied. While the cannabis industry has seen steady growth in the last several years, the banking industry has faced accelerated branch closure rates, which doubled during the pandemic.”

It would seem that the bank vault would be the big draw since cannabis dispensaries handle a lot of cash and often have to lock up inventory, but that isn’t the case. 

It’s Not The Vault

 Andy Poticha, Principal of Cannabis Facility Construction said, “People assume because a bank has a vault, that bank vault can be reused in a dispensary. In most cases this is not true as the vaults in banks are very small particularly because there are intentionally smaller amounts of cash on site. The smaller vaults are useless for dispensaries because they’re not big enough to house what the cannabis facilities need for dispensing product.”

 Virginia Maggiore from RDC Cannabis Facility Construction came to a similar conclusion, “We have a project in Fresno in an old bank building which worked the existing vault room into the design as storage for cannabis products during sales hours and also as secure vault storage overnight. We often have to build a new secure room in retail dispensary spaces, so when we can work with existing vault spaces we are often able to save on cost and time. In my experience, building a new secure room can cost anywhere between $8,000-$10,000, or even up to hundreds of thousands of dollars in areas where local regulatory bodies require a more intense security setup, such as requiring a cannabis company to meet UL Standards.”

Security expert Tony Gallo, Managing Partner of Sapphire Risk Advisory Group said, “An advantage of renovating an old bank is that they are well-constructed and the likelihood of a breach from the exterior through the walls or ceiling is low. Another appeal is that old bank buildings have a reputation for being safe and secure and are typically not targets of crime.”

Drive Through Lanes

One thing that does appeal to some of these banks to bud building redos is the drive-through lanes. Poticha said, “It’s my opinion that the reason why cannabis dispensary owners are looking into using bank buildings has absolutely nothing to do with security but is completely related to the fact that those structures already have built-in drive-throughs. Many cannabis companies today believe that drive-through use will be a future approval even though the local jurisdiction may not have approved adult-use or might not ever considered allowing the use of drive-throughs. The fact that bank building drive-throughs have pneumatic tube systems is most desirable particularly as it relates to the transaction/express nature of preorders. We have worked with cannabis companies in West Virginia and New Jersey who have been very proactive in buying, renovating, and opening dispensaries in former banks with drive-up lanes but leaving them unused with the anticipation and expectation that one day the conversation for this method of product delivery to clients will begin and be accepted.”

Gallo said, “The bank drive-through lines could definitely be a benefit for cannabis dispensaries seeking to operate curbside pickups. I’ve had a few clients successfully integrate pneumatic tube systems into their operations to transport cannabis to the sales floor from the vault, and this could also be adapted to facilitate curbside sales. The pneumatic tubes could easily be used to check IDs, exchange payment, and transport cannabis.”

Bank Building 

One successful bank renovation is the Jushi (OTC: JUSHF) Beyond Hello medical cannabis dispensary located in Pottsville PA. The former old Schuylkill Trust Co. building was built in 1923 and is a classic “small-town skyscraper” with six stories of offices above the large banking hall. BEYOND / HELLO Pottsville occupies the first-floor banking hall, and special care has been taken to blend the modern retail style seamlessly with the former bank’s turn-of-the-century elegance. Andreas “Dre” Neumann, Chief Creative Director of Jushi said, “It is important to understand that because of regulations, and security and safety standards, we rarely get to take advantage of existing interior architectural design. We had high hopes of initially incorporating the historic bank vault in some shape or form into the design of the dispensary, but unfortunately, we were not able to. However, the exterior of the historic building has been carefully preserved and remains an important landmark in the downtown area.”

On top of that, one of Jushi’s cannabis brands is called The Bank and plays on the idea of banking with flower categories like Gold Standard and Vault.

 

Of course, dispensaries will need to do some legwork when assessing a bank building as a potential location. Gallo said, “Prior to purchasing or leasing an old bank to be a cannabis dispensary, you should determine where the current safe or vault is located to ensure it can facilitate the operations of a dispensary. For example, in one old bank, the vault was located on the basement level, with was not compatible with the operation of the business, and another vault had to be installed on the main floor. At another location, the vault was constructed in the middle of the sales floor and did not comply with regulatory guidelines.”

He added, “There is a misconception that renovating an old bank building is cheaper than renovating an existing retail space, but in my experience, this is not always the case. I have seen secure storage construction cost twice as much in a bank than it would in other properties.”


Debra BorchardtDecember 4, 2019
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On Tuesday, The Board of Governors of the Federal Reserve System, the Federal Deposit Insurance Corporation (FDIC), the Financial Crimes Enforcement Network (FinCEN), and the Office of the Comptroller of the Currency issued a statement clarifying banking rules around hemp customers.

Key Takeaway

The key takeaway from the statement is that banks no longer need to file the onerous Suspicious Activity Report, known as SARS for hemp farmers.

The statement said, “Because hemp is no longer a Schedule I controlled substance under the Controlled Substances
Act, banks are not required to file a Suspicious Activity Report (SAR) on customers solely because they are engaged in the growth or cultivation of hemp in accordance with applicable laws and regulations. For hemp-related customers, banks are expected to follow standard SAR procedures, and file a SAR if indicia of suspicious activity warrants.”

Michael Weiner is a partner at the international law firm Dorsey & Whitney and the chair of its Cannabis Practice Group said, “This statement is limited to hemp growers and not to other businesses related to hemp or CBD from hemp.  For banks that are already providing banking services to hemp growers, the word “solely” may cause banks to hesitate to cease filing suspicious activity reports for these customers.  For banks that are reluctant to provide banking services to hemp growers, this statement is unlikely to provide sufficient comfort to enter the market.”

“Further, FinCEN stated that it would issue additional guidance following further review of the USDA interim final rule, perhaps following issuance of final rules from the USDA following the current public comment letter.  Banks may delay making any changes to their banking services until issuance of such additional guidance,” Weiner added.

The statement went on to add “When deciding to serve hemp-related businesses, banks must comply with
applicable regulatory requirements for customer identification, suspicious activity reporting, currency transaction reporting, and risk-based customer due diligence, including the collection of beneficial ownership information for legal entity customers.”

Many in the industry are not interpreting the language as starkly as Weiner. Most believe the statement gets all hemp customers off the hook with banks. However, banks tend to be very conservative and may opt to only apply the SARS guidelines to the growers and not the extended hemp family of CBD producers.


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