If you’ve ever been into a dispensary, it is, in many ways, an unrivaled cannabis purchasing experience of the modern era. And yet, there remains one thing constant: you have to pay with cash. Holding true in both legal and illegal markets for marijuana, this technicality has been largely overshadowed where cannabis markets have pressed the YES button on adult legalization but is nonetheless an example of the shaky ground on which marijuana legally exists.
Overshadowed by consumer zeal, though not forgotten by anyone working in the industry, the marijuana banking function for the US marijuana industry has been the subject of several legislative reform attempts and political lobbying, with the most current push for reforming marijuana banking coming from Elizabeth Warren, D-MA and bipartisan friends within the Senate.
The Perpetual Issue of Conflict
Unfortunately, the green light from ballot initiatives allowing cannabis into individual states continues to contradict the Controlled Substances Act, a federal measure that specifies that all businesses, banks, or financial institutions, not engage in the workings of criminal drug-related behavior. In regards to marijuana, this leaves banks on fundamentally frangible agreements with marijuana businesses.
With an underwhelming national total of 301 banks in 2016 actively allowing legitimate marijuana businesses to both stash their cash and obtain financial services, the vast growth in population size with access to cannabis after the 2016 elections (over 65 million in just California, Florida, and Massachusetts) could be perceived as public safety concern that President-Elect Trump and his Administration may use to upend the current status quo — that is, where the FED doesn’t bother states with marijuana laws backed by voters, save for research and Department of Justice concerns.
Steps Taken to Speed a Slow-Moving Bureaucracy
Moving in a precariously visible fashion, Elizabeth Warren, alongside Senators from Oregon, New York, Washington, Vermont, Minnesota, Maine, Arkansas, and New Jersey acted in mid-December 2016, sending a letter to the Financial Crimes Enforcement Network asking to reevaluate the Organization’s current counsel and issue new guidance with haste.
As nations around the world are wondering exactly how a Trump Presidency will navigate policy, the unified Republican Congress and Presidency have set an aggressive agenda timeline for the months to come. In an effort to stime any potential threats, real or perceived, to the advancement of American voices through marijuana-affectionate ballot measures, the letter sent by Elizabeth Warren and friends conveyed — if only a bit louder — that the current ways marijuana banking is handled are prohibitive to a detriment, and not just for growers, manufacturers, and retailers of cannabis products.
The Assurances Only an Act of Congress Can Provide (probably less so)
In February 2014, soon after Colorado began legally selling cannabis products, the President of the Colorado Bankers Association released an overview of the roadblocks that make doing business with dispensaries or providing services to marijuana-related businesses look significantly unappealing. Still, marijuana businesses are not untouchable for financial institutions, and while marijuana revenues boastfully huff and puff, the letter Elizabeth Warren and company sent couldn’t resound at a more necessary time.
The Bank Secrecy Act forces A LOT of paperwork, threatens legal issues
The US Department of Treasury employs an administrative hold on financial institutions, and navigating the regulations in the uncharted territory of marijuana legalization has proven to be cumbersome and perpetual. Until a time when marijuana banking exists unfettered from unreserved scrutiny, the Bank Secrecy Act (BSA) requires that institutions watch for money laundering behaviors from criminal enterprise, generating a suspicious activity report (SAR) with each occurrence. Additionally, any deposit of $10,000 or over generates a Currency Transaction Report (CTR), which can be used as evidence of possible money laundering or other illegal activity.
While cannabis remains Schedule I, having no sufficient medical value accepted by the DEA, banks who do business with marijuana business and vendors would be subject to legal penalties associated with money laundering if accepting money that was used for federally illegal activities — extending even to individual bank employees. Additionally, the Know Your Customer guidelines specify that institutions should know what sort of business the client is operating and to file SAR or CTR with this information.
Since banks are bound to not participate in a federally criminal enterprise, cash is not only what is used to purchase marijuana products — it’s what has to be used to raise capital. Business owners or entrepreneurs have to come into the industry with cash or liquid assets, as banks cannot loan from their reserves because the Federal Reserve cannot back assets that are used for illegal activities. In addition to this, the commercial skepticism embodied by the Colorado Bankers Association extends to even the indirect businesses such as distributors, transportation services, warehousing and storage facilities, rental and property managers, all whom may be denied accounts and credit or even have their accounts closed for lack of clear rules on what is acceptable, reportable business practices in marijuana banking and what isn’t.
The point is clear: until sufficient guidance (not that less restrictive laws wouldn’t be nice) from Federal oversight exists, banks are wary of navigating the hazed waters of marijuana legalization. Whether in the form of a memo from the US Treasury (specifically FinCED), from the Department of Justice, or even directed by the FDA, governmental stagnation should best be avoided in the growth industry of marijuana. At a time when cannabis is poised for growth in legal, taxed economic performance unseen in the developed world, the bipartisan push by Elizabeth Warren, Bernie Sanders, and a variety of other State Senators, is necessary for future growth AND addressing Justice Department concerns.
In moving towards a taxed, regulated structure, the cash dominated function of the cannabis industry has caused more harm than good in communities, potentially interfering with governmental ability to track sales and other data of interest, limiting assurance that tax information is correct, and not a cash subterfuge making fraud or money laundering possible.
In addition to addressing marijuana banking concerns, Elizabeth Warren and Co. stress the implicit safety risks of a billion-dollar industry operating as a cash economy in the modern day. Not to mention, such a process provides an opening for crime into legal businesses. As an example, dispensaries often have check-in points, security officers, and cameras strewn throughout, yet they also maintain an individual reserve of cash that makes them keen targets for burglary and/or robbery.
Having to hire security services who may have their ability to provide security taken away for trying to protect people from other people at a marijuana business because of the presence of large amounts of tangible monetary assets (like cash) perpetuates indirect costs to the consumer and weighs heavily on the business, industry, and all involved. It also seems excessive, or unnecessary: take your pick.
As culture shifts across the US, with marijuana being seen as less harmful, medical especially, the point of barring business from banking highlights a growing divide between the judiciary and the population of the American domicile. Elizabeth Warren and other bipartisan supporters end the letter to the Director of the Financial Crimes Enforcement Network saying that this would lead to country-wide economic growth, a result of banks being able to loan all excess reserves received from marijuana businesses and related vendors from the marijuana industry which, nationwide, is valued around $50 billion (including current illegal sources). Whether a good investment in the future of marijuana banking, or just good for investment, the directive letter (hopefully) is the final ladder rung on the path seeking clearer guidance to banks on how to deal with marijuana clients, allowing both greater financial transparency to the business and a deterrent of cash-rich problems, such as robbery.
If you’d like to read the letter, Click Here. It’s at the bottom of the page.
By Joey Wells