Banking in the Cannabis Industry — A ticking timebomb?

Picture you are closing up your store for the evening. Let’s say it’s a jewelry store, so the value density of the merchandise sold there is very high, not to mention highly liquid. Also, a good day means quite a bit of transaction will occur, and quite a bit of revenue received.

Now imagine all of these transactions were in cash. And that cash could not be put in the bank. And you had to use that money to pay your employees, pay for services, pay rent and utilities, and even pay taxes, including those to the same federal government that is forcing you to use cash, and cash only.

So as you get ready to lock the store up, what are you feeling? I know I’d be feeling scared as hell with a lot of cash on me and a lot of high-value merchandise behind me.

In addition to the psychological stress, being cash-only adds a ton of inefficiency to the industry. The time cost that comes with having to track and handle up to tens of thousands of dollars a day, mostly in $5s and $20-dollar bills, is enormous. And let’s not forget the costs to securely store and transport this amount of cash, which can be on the order of thousands of dollars per day, with little guarantee that one will get their money back in the case of an adverse event like theft.

Every year there continue to be incidents of theft, particularly when money is moved around. Considering Colorado will do close to $1.3 billion of business this year (as of today it was $1.275B — courtesy of BDS analytics) the chances of something really horrible happen, because of lack of banking, is creeping frighteningly high.

So what do you do instead? Well, we’ve identified three major ways business operators get around the issue. We also touch on a fourth and final option, rescheduling, but that’s out of our hands for now.

1. Bank Musical Chairs — This is where cannabis businesses open an account, go as long as possible until they are eventually found out, then simply go somewhere else when the bank freezes their accounts. The downside is that eventually there won’t be a chair for you when the music runs out.

2. Blockchain — Forget dealing with US government fiat currency, this universal cryptocurrency gets around the fact that is illegal by not only using a non-sovereign currency, but by also being completely transparent to regulators, thereby eliminating their main concern — money laundering. Again this isn’t an instant fix, but allows lawmakers to create one.

3. “Green” banking — Banks that specifically cater to the cannabis industry. These banks have strict covenants with their cannabis account holders and often require NDAs. The level of service is degraded a bit, and it is still very difficult to take money out of the system, but it makes moving money around safer and easier.

4. Rescheduling — This is the first step towards fully opening conventional banking to the industry. It will not automatically make cannabis money bankable (although some banks may actually take a risk on this) since it still requires some governing legislation, but as long as Cannabis remains a schedule I drug under the DEA, no lawmaker will be able to put forward these necessary laws. We are hoping robust seed to sale tracking will create a much more hospitable environment for rescheduling.

So, let us hope we move fast enough to “diffuse” the bomb, before something happens that potentially sets the industry back, all because it was being restrained in the first place by archaic thinking and regulation.