We are schizophrenic as a country when it comes to regulating the marijuana industry. While the vast majority of states have legalized marijuana for medical or recreational purposes, the U.S. federal government, still operating under the controversial strictures of the Controlled Substances Act of 1970, still considers marijuana verboten. In addition to the obvious schism this creates between the states and our federal governments, there are indirect consequences that are nonetheless impactful.
A Cash-Only Industry
One of those consequences is denial of banking institutions to marijuana dispensaries, necessitating the use of a cash-only model. And though there are a few alternative options,
“. . . the industry is still predominantly cash-based. This situation is a fertile breeding ground for thieves and tax cheats. States that allow legal marijuana tax the substance. However, as businesses pay taxes in cash, collection is a nightmare” according to wayofleaf.com.
This cash-only model also means that on any given day, a dispensary is flush with a significant amount of money. According to the website cannasos.com, “For a marijuana dispensary, a good day means servicing about 1000 patients and a slow day means anything around 400 patients. The customers spend an average amount of $50 per person which means $50,000 in a day (good day).” This cash rich environment makes dispensaries a potentially soft target for thieves. Oklahoma and Oregon have had a rash of robberies, leading retailers to arm themselves in the wake of two associated robbery deaths.
The same ugly dynamic is unfolding in California, one of the first states to legalize recreational marijuana. As reported in The LA Weekly:
The year has seen numerous robberies in The Emerald Triangle, Sacramento, Oakland, Los Angeles, and all points in between. These have included stick-up kids getting away with 20 pounds of flower with a retail value of $156,000 and the cracking of a safe by someone a bit more technically adept in a separate incident. That latter effort was said to score $161,000 destined to be taxes. Sacramento industry insiders say two places were hit in the same night.
It’s no wonder these robberies are occurring. A recent article in Forbes describes the problem:
Dispensaries are tempting targets for criminals because the weed can be resold in states where it’s illegal and the stores tend to hold large amounts of cash. Even if a state has legalized marijuana, it’s still classified as an illegal Schedule I narcotic by the federal government, so credit card companies won’t process transactions from dispensaries and most banks won’t give them loans — or allow them to open up accounts to deposit their cash.
This has of course led marijuana retailers to lobby congress for changes to the banking regulations. And there is a beacon of light on the horizon. On April 19 (yes, it was only a day off), the U.S. House of Representatives passed H.R. 1996, known as the Secure and Fair Enforcement Banking Act of 2021 or alternatively the SAFE Banking Act of 2021. Although the bill specifies multiple items related to marijuana industry and the banking sector, here is the core of the bill:
SEC. 2. SAFE HARBOR FOR DEPOSITORY INSTITUTIONS.
(a) In General.—A Federal banking regulator may not—
(1) terminate or limit the deposit insurance or share insurance of a depository institution under the Federal Deposit Insurance Act (12 U.S.C. 1811 et seq.), the Federal Credit Union Act (12 U.S.C. 1751 et seq.), or take any other adverse action against a depository institution under section 8 of the Federal Deposit Insurance Act (12 U.S.C. 1818) solely because the depository institution provides or has provided financial services to a cannabis-related legitimate business or service provider;
(2) prohibit, penalize, or otherwise discourage a depository institution from providing financial services to a cannabis-related legitimate business or service provider or to a State, political subdivision of a State, or Indian Tribe that exercises jurisdiction over cannabis-related legitimate businesses;
(3) recommend, incentivize, or encourage a depository institution not to offer financial services to an account holder, or to downgrade or cancel the financial services offered to an account holder solely because—
(A) the account holder is a cannabis-related legitimate business or service provider, or is an employee, owner, or operator of a cannabis-related legitimate business or service provider;
(B) the account holder later becomes an employee, owner, or operator of a cannabis-related legitimate business or service provider; or
(C) the depository institution was not aware that the account holder is an employee, owner, or operator of a cannabis-related legitimate business or service provider;
(4) take any adverse or corrective supervisory action on a loan made to—
(A) a cannabis-related legitimate business or service provider, solely because the business is a cannabis-related legitimate business or service provider;
(B) an employee, owner, or operator of a cannabis-related legitimate business or service provider, solely because the employee, owner, or operator is employed by, owns, or operates a cannabis-related legitimate business or service provider, as applicable; or
(C) an owner or operator of real estate or equipment that is leased to a cannabis-related legitimate business or service provider, solely because the owner or operator of the real estate or equipment leased the equipment or real estate to a cannabis-related legitimate business or service provider, as applicable; or
(5) prohibit or penalize a depository institution (or entity performing a financial service for or in association with a depository institution) for, or otherwise discourage a depository institution (or entity performing a financial service for or in association with a depository institution) from, engaging in a financial service for a cannabis-related legitimate business or service provider.
The gist of this bill is that dispensaries will be able to handle consumer transactions like any other business entity (Wow who would of thunk it?). But in that bizarre, opaque sausage making machine we call the Capitol building, business grinds exceedingly fine and slow. For a variety of reasons, H.R. 1996 got hung up in the U.S. Senate, where it continues to languish.
Terry Hacienda, writing for The Fresh Toast, explains one of the sticking points: “One of the senators in the Senate banking committee, Sherrid Brown, has said that he is not yet fully convinced about the bill. He added that there are other things to be considered—like the sentencing reform— before the bill can have its full backing.”
Hacienda also points out that “The chairman of the Senate Banking Committee, Sen. Mike Crapo (R, Idaho), has not called any meeting on the bill yet, and reports say that he is against the proposal until it is modified to include some terms and conditions which have been considered illogical to the growth of the cannabis industry.”
Sen, Crapo has some legitimate concerns, pointing out that the bill “didn’t do enough to keep marijuana from being marketed to children or protect public health and suggested several changes.” But Crapo has also stated, according to Hacienda, that “all cannabusiness in need of financial services from banks must have a THC content of at most 2%”. You can see how such a proposal would make H.R. 1996 a feckless piece of legislation.
However, it is likely the bill will eventually gain momentum and be passed, making it law in some form. Only time will tell how much longer cash will be king.
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