Legal Weed & Legal Tender
Have you ever walked into a cannabis dispensary? One of the first things you might notice is an ATM over in the corner. Why’s that? Because the marijuana business is still stuck in a bit of a conundrum. Many states have decriminalized the sale or use of cannabis for medicinal and/or recreational purposes, but it is still illegal under federal law. It remains a ‘Schedule I’ drug on the Controlled Substances list, meaning the Drug Enforcement Agency considers marijuana as having:
- ‘a high potential for abuse’
- ‘no currently accepted medical use in treatment in the United States’
- ‘a lack of accepted safety for use of the drug or other substance under medical supervision.’
So while various state laws allow for the sale, purchase, and use of marijuana and cannabinoids, these items are highly illegal at the federal level. Depending on the quantities involved, a convicted offender is still vulnerable to a life sentence in prison. Obviously this puts a great deal of stress on marijuana merchants, who otherwise are conducting a quite lucrative business selling a product which is legal as a matter of state law in the areas in which they operate.
In an effort to conduct some research into the topic, I phoned four Oregon cannabis dispensaries at around 1:00pm. Every single one was willing to chat, but couldn’t because they were too busy! In a time when some of the nation’s largest and oldest department stores and retail outlets are shuttering their doors, these small businesses are raking in cash.
But therein lies the rub. They must deal exclusively in cash.
Some startups are taking advantage of this unprecedented opportunity, though. For instance, Kind Financial is the self-styled ‘Wells Fargo of the marijuana banking industry.’ That’s no small claim for a company founded just four years ago. And yet, with Microsoft as their financial backer, Kind isn’t just blowing smoke.
Their ‘technology platform provides tools focused on cannabis tracking and compliance for cultivators, dispensaries, and regulatory agencies in the cannabis industry. These solutions manage the entire cannabis business life-cycle ensuring that transactions are safe, secure and remain in compliance with the rules, regulations, laws and guidelines.’
Is that really possible? After all, as far as federal law goes, every $1 given to a ‘legal’ drug dispensary is considered ‘drug money.’ Few banks are willing to accept such funds out of fear. If banks know how the money is made, they are supposed to report it. If they continue to accept it, they could face being shut down by the federal government.
The Department of the Treasury’s Financial Crimes Enforcement Network did issue a memo claiming they wouldn’t press charges against banks so long as the banks followed all state laws and complied with the ‘Cole Memo’ policy. Under the ‘Cole memo,’ states had to ensure drugs were kept out of the hands of minors, contained within state boundaries, and that criminal activities were not profiting in any way from drug sales.
Those are tough standards for any bank to guarantee. And bear in mind the current administration can revoke these ‘memos’ without much warning.
Aside from sales, store owners also face the challenge of payroll issues. They must seek ‘creative solutions’ to paying their employees, and by creative we mean often illegal. Take one California retailer’s account of setting up a phony LLC to pass off as a property management firm so that the bank will take his funds. Some people might say that the legal definition of such an activity is ‘money laundering.’
State officials have been perplexed. ‘How do you handle the taxation of cannabis dollars and the banking of billions of dollars of transactions that are going to take place here in California?’
The above quote from California Treasurer John Chiang is spot on target. States allow for the legal sale of cannabis, but because of contradictions within the banking system, they may be missing out of millions in tax revenue. And in their efforts to decriminalize the sale of pot, they’ve inadvertently set up business owners to risk another form of criminal activity, as the money laundering story above exemplifies.
Joseph Vincent of Washington State’s Department of Financial Institutions noted that his state specifically asked state-chartered banks to accept funds generated from cannabis sales. Twelve institutions took up the challenge, though five do most of the business. That’s five banks in the entire State of Washington willing to work with this industry!
So some businesses have been considering alternatives to traditional banking or cash dealings. Yes, we’re talking now about cryptocurrencies, the wave of ‘the future.’ Only the future is now.
Bitcoin, as a decentralized digital currency, has been around for nearly a decade and is now a more-or-less commonly used payment method. Using a ‘public ledge’ system of accounting known as blockchain, Bitcoin and other cryptocurrencies are still a long ways from replacing cash or credit for normal purchases. However, for situations such as those faced by the cannabis industry, crypto may be the way to go.
Indeed Potcoin (POT), launched in 2014, is bluntly positioning itself to be the new gatekeeper for the sector. As their mission statement boldly puts forth, Potcoin’s creators intended ‘to empower, secure and facilitate the legal cannabis community’s transactions by creating a unique crypto currency for this thriving industry. To remove the need for cash transactions and encourage buying through consumer incentives. To be the banking system and infrastructure this industry so desperately needs.’ With a market cap near $75 million, they do appear to be a major contender in the field.
Why, though, does the cannabis industry need a specific cryptocurrency designed with it in mind? Put another way, what can Potcoin do for legal marijuana vendors that Bitcoin, Litecoin, Ripple, Monero, or any other cryptocurrency could not do? This author has not been able to find an answer. Nonetheless, for businesses willing to tolerate the volatility, keeping funds in cryptocurrencies might be better than keeping cash. Perhaps cryptocurrency in the cloud is more secure than cash under the mattress. Or perhaps not.
In the meantime, federal marijuana enforcement policy remains under the spotlight. Attorney General Jeff Sessions staunchly opposes cannabis. ‘It’s my view,’ Sessions has said, ‘that the use of marijuana is detrimental and we should not give encouragement in any way to it. And it represents a federal violation which is in the law and is subject to being enforced…’
So it does seem vital for cannabis business owners to take a hard look into alternatives such as those offered by Kind Financial and cryptocurrencies. Even if they are able to find and utilize a traditional banking institution, who knows what criminal charges they could face if federal crackdowns begin in the next year or two?
The Trump administration may be upholding the Obama-era ‘hands-off’ approach for the time being, but the future is never certain.
And as we already said, the future is now.
Please don’t take anything you read here as medical or legal advice. If you need medical or legal advice, consult a doctor or lawyer. The articles and content that appear on this website have been written by different people and do not necessarily reflect the views of our organization.