High Hopes for Banking
Why an amicable relationship between the cannabis and banking industries needs to happen in order to progress to the next step in the legalization of marijuana
By Ryan Farrell, Cannabis Journalism [MFJS3900]
A man walks into a bar carrying a large bag of cash, all in twenties. No, it isn’t the beginning of a bad joke. This is the reality many dispensary owners face today. With the cannabis industry bringing in $5.4 billion in revenue last year dispensary owners must be swimming in cash like Scrooge McDuck, right? This is not the case. Many restrictions are placed on cannabis revenue which makes it difficult to securely store and even pay employees at times.
The federal government does not recognize cannabis as a legal substance anywhere in the U.S., that being said they have turned a blind eye to states that have passed legalization legislation. Due to the federal status of cannabis, no banks will accept cannabis money out of fear for federal repercussions. A charter was approved by state banking official which was the inception of the Fourth Corner Credit Union (FCCU). This gave the cannabis industry hope that access to checking, wire transfers, lines of credit and more was within reach. However, at the moment they are not accepting deposits.
“The idea was, once legalization hit and it was proven in the state of Colorado that with a state-regulated system this industry can be favorable for the economy, can pull it out of the black market, that there would’ve been a conversation around giving us access to banking”, said Jaime Lewis owner and founder of Mountain Medicine.
Until new federal legislation about cannabis, either legalization or rescheduling, the FCCU will remain in a stalemate with the federal government.
Tax Code 280e
Most businesses are able to write off expenses for the goods they manufacture. It can be expensive to produce these goods and the ability to write them off keeps them profitable. This is not an option for businesses in the cannabis industry to do thanks to tax code 280e.
“No deduction or credit shall be allowed for any amount paid or incurred during the taxable year in carrying on any trade or business if such trade or business consists of trafficking in controlled substances which is prohibited by Federal law or the law of any State in which such trade or business is conducted,” states tax code 280e.
This means no deductions for any costs in producing cannabis and cannabis products except for Cost of Goods Sold. The margins are much less than they would be in a normal industry. In such a cash rich industry these restrictions make it very hard for dispensary owners to make a profit. In some cases, owners are spending nearly as much as they are making just to maintain, and they are struggling to pay their employees.
In an interview with Ry Prichard, a cannabis photographer, reviewer, consultant, and founder of cannabisencyclopedia.com said,
“People assume that dispensary owners are raking in the cash, but largely because of 280e, that is definitely not the case for many of them… none of it is deductible.”
Cannabis sales are very high but tax code 280e makes it hard for some dispensaries to stay afloat despite foot traffic in the door.
Cash, Cash, Cash
“Marijuana legalization hasn’t taken away one black-market aspect for the drug in Colorado and Washington: Cash runs the business,” Kristin Wyatt wrote in “Sales Begin in US States”.
So if you can’t put your cash in the bank, then what? A lot of dispensary owners are left holding onto large bags of cash that no one will touch. This puts a target on the back of anyone holding large sums of cash, like these people. Some are able to open a bank account, at least for a little while. But, if banks get any suspicion whether it be too many deposits or even a smell of marijuana they will close an account.
Julie Berliner has been at the forefront of the edible industry in Colorado since 2009. That’s when she opened Sweet Grass Kitchen in Denver. “A small batch bakery that produces and distributes fresh, cannabis-infused edibles throughout Colorado,” according to their website. I had the opportunity to speak with her about her experience with the banking industry and she said,
“There are some banking options not that are supporting the marijuana industry, but it’s referral only, very closed door. It’s expensive and they are not offering their services to a lot of people. So I was lucky, last May, to obtain a bank account. So, now I’m banking properly. I say properly meaning openly. I am luck but I am one of few other people are still dealing with multiple bank accounts and keeping a ton of cash on hand.”
Not everyone is fortunate enough to find a solution as Julie. In Bruce Barcott’s book Weed the People, he discusses a man named Vincent Keber and the catch twenty-two he found when making his money. The federal illegality of marijuana made it so most banks would’t touch it out of fear of losing their charter, much like Fourth Corner Credit Union.
The unfortunate ones, like Keber, have to get creative if they want to safely store money, but even then they still have the looming threat of robbery. If someone, god forbid, is killed in a cannabis money related robbery, then Julie believes that, finally, the message will be received nationally and the banks will open their doors to the cannabis industry.
Ry Prichard is hopeful it will not take such a terrible event for progress to be made, but agrees it would get the medias attention.
“I think it’s really just a tipping point thing predicated upon the amount of money or the amount of people/states that are affected by this issue”, said Ry
With 23 states and the District of Columbia that have medical marijuana 43% of the country is already green. With nearly half the country leaning towards medical marijuana the tipping point must be in sight.
Cannabis Banking in Oregon
The Oregon House of Representatives recently passed a bill that bodes well for cannabis banking. Banks will for-go any liability for the funds as long as the dispensary is state regulated. The bill gives banks some insurance when accepting cannabis businesses as clients. This gives the potential for dispensary owners to have proper bank accounts for their funds, which they would have otherwise had to bury either metaphorically or physically. Anthony Johnson of Marijuana Politics writes,
“Ultimately, the cannabis industry needs a federal fix to the banking issue, but the state of Oregon is showing real leadership by moving this important bill. House Bill 4094 passed the bill 56–3 with just 3 Republicans voting against the bill and one Democrat absent.”
This important legislation could make waves in the industry. If Oregon carries this out correctly they could become the golden standard for cannabis banking, and set a precedent for cannabis banking around the country.
Moving Forward
Oregon’ banking bill is a step in the right direction, and it could be the solution to the cash problem many cannabis companies face in the future. Successful impementation of the bill could be the foundation needed to build a cannabis banking industry, as the Fourth Corner Credit Union set out to do. Ultimately, a change in federal policy will absolve the issues with bank and tax code 280e. Only time will tell, but I am hopeful for the future of cannabis and banking.
