Recreational Weed and Legal Marijuana Money Banking Problems

As legal marijuana businesses continue to spread across this nation, the states have made a decision that complicates the financial transactions revolving around the sales of this federally classified Schedule 1 drug and marijuana employemnt.

The 1970 Congressionally approved Controlled Substances Act made this class of drugs, including heroin, LSD, and ecstasy, illegal to manufacture, possess, or distribute. The act also prohibits any monetary exchanges from institutions that rely on the Federal Reserve System from accepting the revenue of marijuana sales.

As it currently stands, banks hesitate engaging in financial transactions with those in the marijuana industry due to concerns of shutdowns and dispensary robberies by federal authorities. Banker’s concerns surrounding the acceptance of proceeds from the sale of marijuana will not be alleviated until Congress acts to remove marijuana from the list of controlled substances or until the states are assured protection from the Controlled Substances Act.

Bankers association Michiels stated, “Until federal law is changed, we just don’t see any way to go forward.”

In the meantime, this growing industry is faced with continued complications surrounding the issue of how to handle the daily cash flows resulting from the sales of a substance that is deemed legal at the state level but remains an illegal narcotic in the eyes of the feds.

The fact that banks refuse to engage in customary financial transactions such as cash deposits, credit card services, or basic checking account functionality leaves growers, processors, retail establishments, and medical distributors left holding bags of cash with nowhere to legally deposit the funds. For the more than 800 members of the National Cannabis Association, this presents a colossal predicament.

The problem doesn’t stop there. The financial implications of a lack of common banking channels also affects those who are contracted with or employed by any of the numerous dispensaries in the AZ marijuana industry. As more and more states continue to add initiatives to their ballots in an attempt to legalize the recreational use of marijuana, this situation only promises to propagate.

The plethora of cash present in more than 2,000 retail stores and medical distribution sites around the country creates an environment of temptation that encourages not only theft but the potential for the occurrence of violent crimes.

Many business owners attempt to waylay the likelihood of threat to their employees by hiring third-party middlemen to manage banking transactions and bookkeeping services in order to both minimize unease regarding public safety and decrease some of the strain on the financial establishments.

Bruce Nassau, whose marijuana business in Colorado brings in more than $10 million a year, is deeply concerned about the safety of his employees. He notices the irony in that in an attempt to create unmistakable transparency within a formerly clandestine industry, the lack of vital banking services causes him to “feel like a criminal”. Without access to proper banking activity, accountability concerning taxes, auditing, and accounting procedures is nonexistent.

Taylor West, deputy director of the National Cannabis Industry Association, says, “We’re hoping Congress will act. The worry is it’s going to take someone getting killed to get action on this.”

While the legalization of marijuana continues to remain a divisive political topic in this country, the fact that the conversation surrounding this issue will continue is a certainty that is almost guaranteed. Considering the rapid exponential expansion we have seen thus far, the progression of this trend is difficult to accurately account for. While hard numbers are not easy to attain, annual estimates currently range from $2 to $3 billion dollars with the expectation that those numbers will continue to escalate.

Scott Jarvis, the director of the Department of Financial Institutions for the state of Washington believes that we have crossed a threshold from which there is no return. “I think this horse is out of the barn”, he said. Moving forward, in his opinion, is the only option for states that have legalized the medical and recreational uses of marijuana.

Jarvis says that financial institutions need to be relieved of concerns of shutdowns by federal regulators for engaging in business transactions with lawful marijuana organizations. Only then will retailers and distributors be free to operate without fear of being robbed. They will no longer need to transport “boxes and suitcases” packed with cash in order to pay their taxes. The risks associated on both ends of these transactions need to be reduced, if not eliminated.

Representative Ed Perlmutter, a Colorado democrat, proposed a bill that would have clearly authorized federal banks and credit unions to engage in financial transactions with legal marijuana establishments without any concern of shutdown or sanctions by the federal government. While this bill was rejected by Congress, more measures like this need to be proposed in order to realize progress in this area.

In the meantime, some 105 banks and credit unions are seeking to devise their own solutions to this quandary. One such institution is Washington state’s Salal Credit Union. Senior vice president and chief lending officer, Bob Schweigert, says that their pilot program is operating favorably with plans for expansion in the immediate future.

Colorado has also attempted to reconcile the law’s current obstacles by chartering The Fourth Corner Credit Union. It is awaiting both a master account from the Federal Reserve System that would permit the clearing of checks and transfer of funds as well as federal deposit insurance from the National Credit Union Administration.

While the master accounts are usually granted immediately, insurance approval could take as long as two years. While it continues to operate as it waits, the credit union admits that there is nothing else they can do to alleviate the issue of excessive cash in the hands of retailers and distributors due to a lack of credible banking services available to the marijuana industry of Colorado.

Any remaining solutions rest in the hands of Congress.