He wasn’t smoking it. He didn’t even touch the stuff.

Yet pot still got the Cleveland entrepreneur kicked out of his bank.

The man operated a company providing a supporting service to cannabis farmers and ancillary businesses. His bank eventually connected the dots, realizing (partly because of the business’ name) he was working with marijuana-based companies.

Despite decades with the same bank, when his ties to the cannabis industry were discovered, his business accounts were closed. His personal ones came next, said Walter | Haverfield LLP attorney Kevin Murphy.

Murphy, who provides legal counsel to the businessman, said the individual prefers to remain unidentified.

“All his accounts got flagged,” Murphy said. “Think about all the transactions that are set up on a wire. All that stuff had to be recreated after 40 years. It’s definitely not easy when your bank cuts you off like that.”

If marijuana is legalized in Ohio, which could happen this fall through Issue 3, those issues will become even more common here — unless federal laws are changed.

Federally insured banks generally won’t knowingly accept money from growers, dispensaries and other marijuana-related enterprises because of federal laws and regulators who penalize banks for engaging with what they still classify as highly risky, federally illegal businesses.

And that creates a litany of issues for those expecting to get into the legal marijuana business from complicating everyday transactions to setting them up as targets for crime

So where will a company’s money go if weed is legalized in Ohio? The answer is hazy at best.

“For banks asking the question about whether they should get involved with marijuana-related businesses, the fact it is illegal federally makes it fraught with difficulty for the banks, and they would be in violation of all these federal statutes,” said James Thurston, a spokesman for the Ohio Bankers League trade group.

“The upshot is until federal law is changed to legalize marijuana, their hands are basically tied,” he said.

Illegal money

Ohio voters will consider legalizing marijuana this fall for both recreational and medicinal use through a constitutional amendment proposed by ResponsibleOhio that could create $554 million in new, annual tax revenues, according to “loose” estimations, said Jennifer Redman, ResponsibleOhio internal communications director.

The group acknowledges banking issues are awaiting the 10 investor-backed commercial grow operations the amendment would establish, along with the estimated 1,100 dispensaries that could potentially spring up based on the expected number of licenses that may become available.

“We do think this is going to change in the future. The IRS has indicated this needs to be addressed,” Redman said. “It is a heavily cash business. They pay bills in cash, workers in cash, rent in cash. It’s a hurdle these new businesses will have to overcome.”

In February 2014, the Department of Justice and Financial Crimes Enforcement Network (FinCEN) clarified the Bank Secrecy Act to allow banks to work with marijuana-related businesses. However, because federal law still classifies marijuana the same as heroin, ecstasy and LSD, banks still largely won’t get involved.

“The main issue that you have is the DOJ can say what it wants about whether or not it will prosecute or not, it’s still federally illegal,” said Christopher Brauser, founder and CEO of Cleveland firm Gabriel Partners, which specializes in anti-money laundering services.

“A larger bank is not going to touch it at all because they don’t need the regulatory challenges or hassles that, quite frankly, come with dealing with illegal money,” Brauser said.

Risk trumps cash

Indeed, what the DOJ has said isn’t good enough. Just ask one of Cleveland’s largest banks.

“At this time, it is PNC’s policy to not do business with any customer (whether a legal entity of a sole proprietor) that is directly engaged in the cultivation, distribution, sale or dispensing of marijuana or products containing or derived from marijuana, or the production, distribution or sale of drug paraphernalia, whether or not such activities are legal under state law,” said Marcey Zwiebel, PNC vice president and senior manager of corporate media relations, in an emailed statement about the bank’s policy.

“PNC also may apply this policy to other entities that provide goods or services to marijuana-related businesses if the provider’s business is primarily focused on marijuana-related businesses,” she added.

Everyone wants the money. They just don’t want the costs and uncertainty that come with the risks.

“The smaller (banks) see opportunities with fee incomes, but we still advise against it,” Brauser said. “The smaller institutions not only have the regulatory concern, but they aren’t equipped to handle the physical compliance.”

Mike Losneck, CEO of Euclid-based Eaton Family Credit Union, which has about $60 million in assets and is insured through the National Credit Union Administration, said he’d have to hire someone full-time to monitor business accounts tied to the cannabis industry.

While not insured by the FDIC, credit unions still are subject to federal regulation, which hinders their approach to the legal marijuana space. That, plus the fact the NCUA hasn’t given credit unions a go-ahead to embrace those businesses as members, means Eaton is staying away — for now.

The story is similar for privately insured credit unions, like Cleveland’s Cardinal Credit Union. CEO Christine Blake said she hasn’t determined if those accounts are a good fit yet, because of the surrounding issues.

“There are, however, a handful of credit unions in other states cautiously taking limited amounts of these accounts onto their books, but not more than they can fully monitor at one time,” said Kimberly Stewart, public relations coordinator for the Ohio Credit Union League. “These are high-risk accounts and require a lot of due diligence and extra reporting to various agencies, and that doesn’t guarantee regulators won’t still tell the credit union to get rid of the accounts.”

Prohibition propagates crime

Walter | Haverfield’s Murphy, whose clients include marijuana-based businesses in Colorado and California, has seen several legitimate companies kicked out of their banks. When that happens, in some cases, they change their company names — eliminating overt references to marijuana — and find new ones as a “temporary” solution, he said.

It’s one surreptitious way businesses are working around the system built against them.

“You introduce the potential for bank crime with that much cash floating around,” said Thurston of the Ohio Bankers League. “That’s not a good situation for anyone. Some will look at passing money through offshore accounts.”

Others still deal in cash, like a massive Oakland dispensary Murphy once worked with, which installed a sophisticated security network with roof-top surveillance cameras that can see a mile away and massive safes guarded by ex-military private security for 24 hours. Two armored cars would escort bags of cash, reeking of fresh pot, to the courthouse to pay their taxes.

“In my mind, it’s a matter of time before disaster strikes and someone gets a little too aggressive,” Murphy said, referencing the potential for robbery. “And if that happens in city streets, that could harm residents.”

So not only do current laws prevent banking for marijuana-related businesses, keeping those dollars from entering the financial system, it further influences the potential for both physical crime and money laundering as companies either deal in cash or find alternative ways to get into the banking system through deceptive means.

And Ohio may be the next state to see this firsthand.

“The bizarre twist here is by not banking these customers, we’re actually creating more problems from a potential monetary and crime perspective than we’re solving,” Gabriel Partners’ Brauser said.