By Abby Hutmacher

Cannabis & Banking: Why Federal Reform is Necessary
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Having a successful cannabis business is indeed an entrepreneur’s dream-come-true, though not without its share of headaches and hang-ups. Take the current banking issues affecting many companies within the industry for example. Inaccessibility to regulated banking and federal banking accounts is preventing cannabis companies from safely storing their cash, increasing the vulnerability of theft and other crimes. How can this be the case if the industry is operating legally you ask? The issue lies in the gray area that is state versus federal law.

Banking in the Marijuana Industry

The recreational marijuana market generated $6.7 billion in 2016 and the numbers keep climbing. While this may seem like great news for industry professionals, the federally illegal status of cannabis makes it difficult to collect payments, store profits and pay expenses.

As a means of controlling the illegal drug trade, the Federal Controlled Substance Act (FSCA) prohibits banks from having anything to do with controlled substances (like weed) including handling money that was generated from them. For banks to be compliant with federal regulatins (which allows them to maintain their federal funding and wire money where it needs to go), they must follow protocol closely. Banks are also required to notify authorities of any suspicious activity such as potential money laundering and keep federal agencies abreast of all transactions, as well as the business nature of every client. Companies that operate under abstract terms or vague business descriptions (which has served as a common way to get around these issues) must be reported and the nature of the business clearly disclosed by banks in order to remain in operation. In other words, federal banks are barred from helping us cannabis folk no matter how closely we stay on the straight-and-narrow.

Though some state financial institutions and credit unions have taken on the task of cannabis banking services, the moment they try to connect with ATMs, credit cards, internet banking or wire transfers, they become federally-obligated and must, therefore, remain as a cash-only operation. This has created quite the conundrum for the cannabis industry as professionals struggle to track and pay all expenses with fistfuls of cash.

Why Regulated Banking Makes Sense

Though the intentions of the FCSA are pure, the evolution of the cannabis industry (and the fact that federal law has not kept up with it) has made the program outdated at best and a danger to industry workers at worst. For example, when cannabis businesses are forced to operate as cash-only establishments, they become more vulnerable to attack. Patrons know there are copious amounts of money on the premises (in addition to an easily movable product on the black market) making pot shops all the more attractive to hooligans looking for a little mischief. The recent slaying of a dispensary security guard in Aurora highlights the dangers of cash-only, hot-commodity dispensaries.

Marijuana businesses face additional burdens when it comes to paying expenses including employee paychecks, taxes, goods/services and general business up-keep. Rather than relying on digital software to create expense reports and distribute payments, many cannabis businesses must rely on their own old-school book-keeping expertise while praying there are no discrepancies. While programs like Colorado’s METRC system help track cannabis-related sales, any mix-up in the collection or distribution of funds could be detrimental to a company.

Cannabis Banking Would Legitimize the Industry

No matter how compliant a business is, how accurate they keep books or how much tax revenue they generate, cannabis businesses will always struggle to establish themselves as legitimate entities within the community. Without proper banking accommodations, they will continue to face scrutiny in relation to the way they spend (or donate) money, the way they advertise and the way they represent themselves within their neighborhoods. Most importantly, dispensaries will remain more susceptible to robbery or federal intervention as long as banks remain reluctant to deal with them. Safety should be at the forefront of this discussion, and federal banking access is an easy way to make cannabis businesses safer.

Additionally, cannabis business operations would run more smoothly with banking access. Employers could track budgets, automatically pay employees and save the 10 percent excess tax that accompanies a cash payment to the IRS. Small businesses could also qualify for loans more easily, paving the way for a bottom-up approach to cannabis business entrepreneurship.

Dolla dolla bills in da piggy bank

Piggy banks are for kids, not marijuana businesses. Photo credit: OTA Photos

The Future of Cannabis Banking

Cannabis banking has been an issue for a while now, affecting medical-only states more-so than recreational states in the grand scheme of things. This has inspired many new companies to be born out of the need for safer, more efficient money-handling programs and organizations. For example, the company PayQwick (based out of Oregon and Washington) has created an automatic payment process in which customers order their cannabis products online or from an in-store kiosk, insert cash into an ATM-like machine then pick up the product directly from a budtender. The process automatically tracks all purchases and payments, and processes reports for the state accordingly. Money does not exchange hands more than a few times (when the dispensary owner releases the money to an armored truck, for example) thus reducing the risk of basic human error.

Many companies are also choosing to work with credit unions thanks to Obama’s promise to look the other way in terms of federal cannabis restrictions. Unfortunately, that may be changing now that Attorney General Jeff Sessions, avid cannabis opponent, has taken office. Though he’s remained largely silent regarding the future of marijuana policy in the nation, past comments regarding the need for tighter control over the substance have some industry professionals concerned. Nevertheless, given the huge economic impact legal cannabis has had on 420-friendly states, it is more likely that this experienced businessman will continue to let the states decide their own policy. Whether or not he and Donald Trump will make it easier by creating federal banking reform in the industry remains to be seen.

There’s no doubt about it, people love their weed, and they’re willing to spend good money to get it legally. So what’s a company to do when they have nowhere to store their money and difficulty using and tracking it? Given the federally illegal status of cannabis, the answer is an unfortunate “not much.” With any luck, that will soon change as long as innovators keep churning out ideas and the American people continue to vote accordingly.


Do you think cannabis businesses should be allowed access to federal banking?

Photo credit: Pictures of Money




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