Bob Diefenderfer has been operating a high-end retail garden supply store since 1998. His wife, Kristen, is vice president. They built a single shop in St. Clair Shores into the largest high-end retail garden supply chain in the state of Michigan, with seven locations throughout the lower peninsula. They have 30 employees, and provide them with Blue Cross health insurance. They pay their taxes, they say proudly, and have cultivated impeccable credit.
And then, last year, their bank, Huntington, closed their business accounts. Huntington gave no reason, except to say that the Diefenderfers could close their accounts at any time. Huntington could make that decision, too.
In a matter of two business days, their business was turned upside down. Automatic payments were rejected. Suppliers, utility companies, and more had their automatic payments go unpaid, and then came the bounced check fees. They had to switch payroll — and their employees had direct deposit. DTE, Consumer’s Energy, their alarm systems, insurance, the water bills — everything had to be changed for seven different locations.
It was financial hell. But the Diefenderfers picked up their money, moved it to PNC, and again set up their automatic payments to suppliers, utilities, and payroll.
Then, in April of this year, they received letters from PNC, notifying them that each of their business and personal accounts (including a savings account in their name they were keeping for their son) would be closed.
They took their money, and went to First State Bank — and First State refused to open an account for them.
You see, Bob’s shop is the Cultivation Station. Cultivation Station sells organic fertilizers, non-GMO seeds, and outdoor gardening supplies.
They also sell indoor hydroponics and aquaponics systems.
And that could be why banks don’t want to do business with them.
Hydroponics: The word conjures up images of huge, underground marijuana grow operations. It’s a mental image some people find incredibly frightening. Others see it as the future, such as when CNN’s Dr. Sanjay Gupta took viewers of his WEED 2 special on a tour of a mammoth medical marijuana growing center in England earlier this year.
But most folks in agriculture realize hydroponics isn’t just for pot — it’s part of the future of agriculture. Even Epcot Center understands this, and uses hydroponics in their “Living With the Land” exhibition.
And that’s one of the reasons Bob opened a Cultivation Station location at Eastern Market four years ago. “We wanted to bring hydroponic interior gardening and organic fertilizer to the mainstream, to show them you can grow anything,” he tells Metro Times. And, he says, “We wanted higher-end clientele.” He wanted to attract the urban gardener, in addition to the suburban, professional gardening crowd that visits the market on weekends. Indeed, if you were at the market in April, you probably saw greens that were grown locally using hydroponics systems. It’s one of the few ways you can have fresh greens year-round in Michigan’s climate.
“Hydroponics [has] been around for 1,000 years, but all people think of is weed,” says Bob. “Hydroponics is just a form of gardening. It’s a more efficient form of gardening that uses a fraction of the water. They say the ancient gardens of Babylon were the first type of hydroponic gardening.”
The store also carries supplies for aquaponics, the new trend in urban agriculture.
And, again, aquaponics isn’t about weed. At Central Detroit Christian (CDC), the community development nonprofit located at Second Avenue and Philadelphia Street in Detroit, aquaponics is a major part of the organization’s job-training program, employing six to 18 people and selling fish and greens to the local community via its Farm and Fishery program.
“Aquaponics is a form of indoor, closed-loop, holistic gardening,” says Anthony Hatinger, Garden Production Manager at CDC. “We’re growing crops with an aquatic life form, and we have a system that feeds and nurtures plant production off expended fish waste. We use no antibiotics, no pesticides, no unnatural fertilizers, and all organic seed and fish food, and we’re non-GMO.”
In other words, an aquaponics farm harnesses the power of fish poop to fertilize and grow greens.
They’re the first licensed fish farm in the city.
“Our primary focuses are employment, education, and economic development,” Hatinger tells Metro Times. “We wanted to create jobs that are viable in the market, and benefit from the resurgence of urban agriculture, and help combat food access and food sovereignty issues in our neighborhood.”
“The whole aim is we have the capacity to serve local. There’s no need to serve outside the city boundaries. We chose aquaponics because it’s a new way of creating local food stocks you wouldn’t normally be able to obtain.”
Their mission, Hatinger says, is about empowering people to have knowledge and a skill set as eaters, and to purchase products and grow food locally.
In keeping with their mission, he says, “We buy from Cultivation Station.”
Many of Cultivation Station’s customers are interested in healthy agriculture, like CDC, and many are over the age of 50.
Bob is a passionate advocate for agriculture that’s free from chemicals, pointing out that five years ago, Meijer had a small organics section. Now, he says, it’s huge. “More and more people want healthy food. People want to get back into growing for themselves, and taking care of themselves. Gardening, outdoors or indoors, is a way to do that. With the length of Michigan winters, indoors is often an appealing option.”
Additionally, he says, “You don’t have to buy something with a skull and crossbones on it to grow your food. We have pure organic fertilizer — Nothing like Ortho or Scotts. We provide service and have smart people working for us.”
He tells a story about an older lady who came in to the Eastern Market location, complaining she couldn’t grow any flowers or plants near her birch tree. The store clerk explained to her that birch trees are acidic and that she needed to put a neutralizer into the soil so plants would be able to grow there. She got the neutralizer, tried it, and came back a number of weeks later to say she’d never had plants thrive in the soil there as she had now. She was grateful.
For many of Cultivation Station’s clients, Bob and Kristen say, it’s about people who want to grow better roses than their neighbors, or have the best house presentation on their street. “It’s a race, and that’s what we offer to a wide variety of people,” he says, noting that in addition to knowledgeable staff and organic fertilizers, they also offer non-GMO Renee’s Seeds.
So why, then, don’t banks want their money? While hydroponics is clearly not just about weed, Michigan is a medical marijuana state, and without a doubt there are caretakers and patients growing their own medicinal cannabis, indoors.
“It’s not our concern what happens when people leave [the store],” says Mark Fanning, co-owner of the Cultivation Station in Traverse City. “You don’t hold Office Depot accountable for the guy buying four cans of duster, going to his car, and huffing it.”
It’s not easy to come by the data on how many hydroponics shops’ accounts have been closed by banks, says Taylor West, deputy director of the National Cannabis Industry Association (NCIA). Banks, she points out, “can shut down accounts anytime they want.”
West says the abrupt closure of business and personal accounts “is extremely common for businesses identified as being in the cannabis industry, even in states where they are in compliance with state laws — most commonly with businesses working directly with the product, but others who have some aspect related to the industry.”
The reason this is happening, she explains, is that banks are regulated on the federal level and have rules they must follow, issued by the FDIC, the Department of Treasury, and the Department of Justice, and so “they are very sensitive about getting cross-wise with any federal law. Because cannabis is still illegal on the federal level, there are certain risks that financial institutions may have that are connected to the cannabis industry, and because of that, they’ve been reluctant to provide services to the industry.”
That challenge, West points out, has been recognized at the federal level, and both the Department of Justice and the Department of Treasury issued memos this year that were “intended to be a road map for banks servicing the industry. Because those memos don’t have the force of law, and because they don’t say the banks will be free of risk, it hasn’t led to an increase in banks that are willing to provide services to the industry.”
Thus, businesses have been “forced to operate in cash, which puts employees at risk, and leads to businesses trying to operate in full compliance with state law being forced to pay taxes, employees, and utility bills in cash.”
“Even if you don’t support marijuana law reform,” West continues, “you can still see that it doesn’t serve anyone’s best interest to force these businesses to operate outside the banking system.”
The NCIA has made the reform of banking regulations in Congress one of its top priorities, because, she points out, the current banking system “is not a sustainable situation.” The governors of both Washington and Colorado, two states where marijuana is legal, have requested the federal government weigh in on the issue of banking more specifically.
Bob and Kristen feel like they’re being discriminated against. “You can’t control what people do with the product once they leave the store,” Bob says. “Home Depot and Lowes are the biggest supplier to marijuana grows. Amazon and Ebay too.”
“We have no criminal histories, we’re parents to a 17-year-old who gets good grades and plays football,” says Kristen. “We provide health insurance to our employees — and now we can’t pay the Blue Cross bill.”
When Huntington first closed their accounts, Kristen thought it was because the bank wasn’t making enough money on them, even though she says they paid $600 a month in fees. “We had a relationship with them,” she says. “They were all chatty and nice. After they closed our accounts, it was like we were criminals. They asked us to leave.”
When the Diefenderfers and their partners were first told their accounts would be closed at Huntington, “we were also told by the banks that ‘We don’t have to disclose why. We don’t have to give you a reason.’ It was infuriating,” Kristen says.
The second time it happened, she says, “My heart just sank, ’cause I knew what it meant.”
“This thing with changing banks is a nightmare,” she continues. “It costs time and money. Ordering and waiting for new checks. Hours on the phone with suppliers.”
Kristen and Bob had brought all of their accounts, business and personal, to PNC, so the bank would know they were serious about doing business with it. When Kristen asked a PNC branch manager why the bank was closing their personal accounts in addition to their business accounts, she says he told her “they didn’t want us filtering money through the personal accounts.”
The Federal government has a number of rules and regulations meant to prevent money laundering and fraud, and the FDIC has some guidelines, as well, specifically set up to mitigate risk of doing business with third-party payment processors. Their list of “merchant categories that have been associated with high-risk activity” include ammunition sales, dating services, drug paraphernalia, firearms sales, fireworks sales, pornography, surveillance equipment, tobacco sales, and travel clubs, among other categories both listed and not — many of which provide the option of making purchases on the Internet.
The Department of Justice also has a program, dubbed “Operation Choke Point,” meant to choke off financial services to questionable businesses. The American Banking Association told the Financial Services Committee of the U.S. House of Representatives on April 8:
On top of this regulatory groundwork, the Department of Justice has initiated Operation Choke Point that starts with the premise that businesses of any type cannot effectively operate without access to banking services. It then leverages that premise by pressuring banks to shut down accounts of merchants targeted by the Department of Justice without formal enforcement action or even charges having been brought against these merchants. There often is no court order or other appropriate legal enforcement proceeding that banks are being asked to implement. Rather the program targets the bank for facilitating a customer’s business conduct that the bank cannot demonstrate is operating in compliance with all applicable federal and state law — compounding the overreach initiated by the banking agencies.
Taken together the banking agencies and the Department of Justice are ratcheting up regulatory and reputation risk to effectuate a choking off of services to businesses … placing on banks the burden to differentiate between proper or improper conduct and based on those risk-based judgments to close accounts or face vicarious liability for the activity of its customers.
Basically, “‘Operation Choke Point’ is asking banks to identify customers who may be breaking the law or simply doing something government officials don’t like,” Frank Keating, president of the American Bankers Association, wrote in an April 24 Wall Street Journal op-ed. “Banks must then ‘choke off’ those customers’ access to financial services, shutting down their accounts.”
When Metro Times asked Huntington if the closing of the Diefenderfers’ business accounts was a part of Operation Choke Point, or because they sell hydroponic gardening supplies, Brent Wilder, vice president, associate director of public relations, told Metro Times via email, “Huntington can confirm that the account closings did not have anything to do with the nature of the business. Privacy requirements prohibit us from talking about customer accounts and the actions we take. In general, all bank customers should be aware that their bank may reach out with periodic questions about account activity. Taking the time to respond to questions can assist in maintaining an account relationship.”
According to Wilder, “reasons why an account might be closed include the following: a history of non-sufficient funds; ongoing negative balance; fraudulent information supplied at account opening; suspicion of account use for illegal or fraudulent purposes; a court order; account dormancy; or risk to the bank.”
When Metro Times asked PNC to comment on the closing of the Diefenderfers’ accounts, or if the closings had anything to do with Operation Choke Point, Marcey Zwiebel of PNC Media Relations replied, “We cannot comment on our customers or our customers’ accounts. These sorts of decisions are handled on a case by case basis,” adding, “There isn’t a laundry list of reasons” PNC goes by in order to determine what accounts should be closed.
While PNC, she says, doesn’t call Operation Choke Point “Operation Choke Point,” she did refer Metro Times to the bank’s March 3, 2014, SEC filing Form 10-K, page 211:
“The Department of Justice, Consumer Protection Bureau, has served a subpoena on PNC seeking information concerning the return rate for certain merchant and payment processor customers with whom PNC has a depository relationship. We believe that the subpoena is intended to determine whether, and to what extent, PNC may have facilitated fraud committed by third-parties against consumers. We are cooperating with the subpoena.”
“In my mind, the biggest outstanding issue we have in Colorado is banking,” says Michael Elliott, executive director of the Colorado-based Marijuana Industry Group, pointing to the obvious public safety concerns with having a lot of cash around. The feds “don’t recognize that we’re legit, but we still have to pay our taxes. And so we have to make our payments in cash. We’re being put in this situation by the federal government that still has its head in the sand about marijuana. They’d rather it be with the black market than with legitimate, licensed businesses.”
Matthew Abel, executive director of Michigan NORML and senior partner at Cannabis Counsel law firm, offers another perspective: “Perhaps we should boycott these banks who are unable to service an active segment of the business community,” adding, “Cultivation Station has been around since before marijuana laws changed. They’ve been servicing the indoor gardening community for years.”
“The other thing is, when the bankers demand it, then the law will change,” Abel continues. “When the banks squawk, they usually get what they want. Hopefully we’re getting close.”
“They make you feel like a criminal,” Kristen says. “We’re growing basil for Christ’s sake.” Indeed, the floor sample of an aquaponics system at the Eastern Market location is teeming with tilapia and basil.
She says she’s scared to open a letter from the bank now. “It’s a two-month process of getting back on track.”
That Huntington didn’t cancel their loan, and PNC closed their accounts, but not their credit cards, also frustrates her.
For now, the Cultivation Station has opened an account for each store, including accounts with FifthThird, Charter One, and Comerica, in order to mitigate the level of problems, should one of the banks decide to close their account.
The Eastern Market location of Cultivation Station was able to open an account with Chase — “That’ll probably be short-lived,” adds Bob.
After all, Chase has recently been in the media for closing the accounts of porn stars.
Wanna see an aquaponics system? Central Detroit Christian offers free tours Mondays at 2 p.m. Call 313-873-0064 for information.
