It’s pretty rare to hear that a company has a problem knowing what to do with what literally amounts to piles of cash, yet this a problem that legal marijuana retailers are facing. Marijuana can be legally bought and sold in over 25 states like Los Angeles & Las Vegas Nevada cannabis dispensaries and the District of Columbia. Experts estimate that legal marijuana sales generate between $2 and $3 billion dollars annually.
What exactly is the problem?
The problem is that marijuana is currently a cash-only business. This is because the state and federal governments are not on the same page about marijuana. The federal government classifies marijuana as an illegal, Schedule 1 drug. This puts it in the same playing field as significantly more dangerous drugs such as Heroin.
A little less than half of the states however allow marijuana to be legally sold for medicinal use. Four states (specifically Las Vegas Nevada Colorado, Oregon, Washington (Soon Arizona and Alaska) also allow it to be sold for recreational use.
The problem is that the same government that classifies marijuana as a Schedule 1 drug, also makes it illegal for financial institutions that are governed by the federal government to accept funds generated from the sale of Schedule 1 drugs.
Financial institutions refuse to allow legal marijuana sellers to open a bank account because, if they accept money made from selling marijuana, even in states where it’s 100% legal, they are in violation of federal law. At the end of a day therefore, a retailer may find him or herself literally swimming in $5s, $10s and $20s and nowhere to put it. ( Source )
Marijuana dealers also cannot accept credit cards. The same rules that govern the banks also govern the credit card processing companies. So even if marijuana dealers chose to accept credit cards, they would never actually see a penny of the payment because the money could not legally be deposited into their bank account.
Being a legitimate cash-only business brings with it a host of other problems.
While other companies can hire a payroll company to pay their employees and handle state and federal taxes, legitimate marijuana sellers are forced to pay their employees in cash and basically hope they’ve done the math right. They have to pay their vendors in cash, which means they have no paper trail if there is ever a dispute over payment.
They have to figure out how to pay rent, utilities and all the other expenses that are common when running a business in cash. All of this cash makes auditing these companies a logistical nightmare and leads bookkeepers to throw up their hands when trying to find a way to track the expenses.
The banks also refuse to accept the cash given to the employees, vendors, property management companies, growers and any other person who profits from the marijuana industry. This means the problem extends well beyond the marijuana retail shops and medical dispensaries.
On the flip side, what is an accountant’s nightmare is a criminal’s dream. These companies, which are literally forced to keep their earnings in the proverbial (very large) shoebox, are at high risk for burglary.
What is the government doing about all of this?
Bankers believe that the only way to solve this problem is to have marijuana removed from the controlled substances list. Or, if that is not an option, explicitly passing a law protecting banks from prosecution in the states where marijuana can be legally bought and sold.
Ed Perlmutter, a Colorado Democrat in the House of Representatives, has attempted to make this exact option come to pass. He proposed a bill that would allow banks and credit unions to offer banking services to legal marijuana businesses. The bill never made it through Congress.
In fairness, the government is actively looking for a middle-of-the-road compromise. Last year, the U.S. Department of the Treasury issued some new rules. These rules stated that banks in states where marijuana is legal could do business with marijuana dealers, if they report their state-licensed customers, follow state law and don’t violate Justice Department guidelines. The Justice Department in turn told U.S. attorneys not to prosecute banks that were following the guidelines. The banks however are still too fearful to do business with people in the marijuana industry.
Lacking solutions at the federal level, some states, businesses and credit unions are actively seeking their own solutions. A small fraction of credit unions, financial institutions not subject to the same federal regulations as national banks, have begun actively welcoming marijuana accounts.
Bruce Nassau, a Colorado businessman, is grateful to these places. He estimates that last year alone, his marijuana business brought in a little over $10 million – all in cash – and it’s nice to have a place to put it. Having a place that accepts his cash however hardly solves all his problems.
He constantly worries that his employees will be robbed or killed while working or trying to deliver the thousands of dollars in cash his business collects in the span of a day. “You’re trying to deposit thousands and thousands of dollars at a time,” he said. “Any Tom, Dick or Harry can come up and hit you over the head.”
Nassau has hired former military and police officers to take the cash and deposit it at an unnamed bank. He turned to these people for protection after he was turned down by a series of armored car services.