In the shadowy marketplace of quasi-legal cannabis, cash rules. North Bay cultivators, processors, distributors and dispensaries move product and transact millions of dollars’ worth of business, but few people accept digital payments. Payments happen with stacks of cash — one form of green for another.
Most banks shun cannabis businesses because pot remains illegal on the federal level, reaffirmed in August as a Schedule I drug under the Controlled Substances Act of 1970. Banks are regulated and insured by federal agencies. Banks balk at public association with the cannabis industry; their brands could suffer and they don’t welcome the inevitable federal scrutiny.
If California voters approve adult recreational use of cannabis on Nov. 8, the cash crunch will worsen as payments soar in an industry that could hit $22 billion by 2020. As more retail businesses accept chip-enabled credit cards and smartphone payments such as Apple Pay, the cannabis cash dilemma appears bizarrely antiquated.
It’s as if banking technology regressed in the cannabis industry to the years from 1875 to 1900 when cash-crammed stagecoaches and trains were commonly robbed in the Wild West. TreasureNet, an online site for treasure hunters, described an auction item reportedly sold in 2008: a Wells Fargo train-robbery ledger with dozens of listings.
To control risk and participate in the digital age, cannabis merchants might record video of cash transactions then store gigabytes of video data in the cloud.
The pot market is huge and growing fast. Nearly half of states allow medical cannabis. Four states with total population near 18 million already allow adult recreational pot, including Oregon, reckoning with cash issues on tax payments this year, described below. Another five states including California, with total population near 60 million, vote on Nov. 8 whether to make adult cannabis use legal. But the federal government, which regulates federally chartered banks and insures state-chartered banks, still sees cannabis as illicit.
It’s hard to run a substantial business all with cash, but that’s what pot proprietors do.
BANKS REPORT SMURFING
Banks regulated by the Office of the Comptroller of the Currency must file suspicious-activity reports on currency transactions exceeding $10,000 to the Financial Crimes Enforcement Network part of the U.S. Dept. of the Treasury under anti-money-laundering laws. Cannabis operators who make multiple cash deposits or transactions under $10,000 to avoid suspicion must also be reported, in schemes that regulators call “structuring” or “smurfing,” in banking jargon.
Government entities also reckon with risks and impracticalities of bundles of cash, such as for tax payments. Each bill of cash in whatever denomination weighs about a gram. A payment of $45,000 requires 454 bills or nearly a pound of $100 bills. The same payment requires 2,270 bills or nearly five pounds of $20 bills. A $1 million collection of sales taxes in $20 bills entails 50,000 bills and exceeds 100 pounds.
Santa Rosa attorney Dan Beck has represented cannabis-industry clients, particularly in criminal law and including retail dispensaries, for 20 years since California legalized medical cannabis in 1996. “You cannot bank or put money in a bank as a cannabis cultivator or manufacturer,” Beck said. Medical-marijuana dispensaries operate under collective or cooperative structures as nonprofits — in cash.
Julie Mercer-Ingram, an attorney in the Beck firm, practices cannabis-compliance law under the business name CannaLegal— “anything cannabis-business-related,” Mercer said, including setting up LLCs or drafting cannabis-related contracts.
More on the local cannabis industry: nbbj.news/cannabis