BUSINESS THRIVES due , in no small part , to the fact that it helps cater to the economy and helps keep money flowing through the system . What happens , however , when part of that economic machinery ceases to function ? What happens when a business is unable to do normal banking ? In the case of businesses operating in the cannabis industry , that is exactly the question they have found themselves asking .
The fact that some states have legalized marijuana while others have not is ambiguous . Equally ambiguous is the fact that the federal government still sees marijuana as an illegal drug . This , unfortunately , creates legal gray areas . The governments of the states and the federal government don ’ t see eye-to-eye on the issue , and while the federal government technically does trump the state , it isn ’ t always ( or even often ) in its best interest to do so .
Banking is one of those gray areas . Banks in a given state — for example , Colorado — will take legal funds which have been accrued as a result of legal business transactions in the state involving cannabis . In 2016 , about $ 1.6 billion in cash flowed through the system . Unfortunately , that is where some problems can start . Since banks must be granted master accounts in order to conduct their business , they are at the whim of institutions like the state federal reserve .
Technically , funds could be seized by the federal government . A lot of the banking that is being done is being done somewhat under the table . National brand banks are not currently showing interest in the business , while smaller banks would run a huge risk for themselves and their clients by admitting to it . Thus , business owners have to find their own way to bank , usually with smaller credit unions . According to Marijuana Business Daily , only around 40 percent of cannabis businesses have bank accounts . Just imagine that for a second : an industry where only 40 percent of the players are able to do banking .
So what are the problems ? Well , there are a whole lot , but here are some of the most glaring ones :
• Inability for a business to do normal banking means money can be coming in with nowhere to go out to , posing problems for tracking such money . Since the states require a lot of regulation and tracking of sales , this puts marijuana companies in a tough position .
• Having to deal with cash on premises , or at basically any location that isn ’ t a bank , poses a huge administrative burden for the marijuana company .
• There is a safety risk with having large sums of cash around .
• Having large sums of cash around also increases the potential for fraud to creep in .
In Colorado , the issue was solved by the intervention of the Department of Financial Institutions . Its director , Scott Jarvis , spent over a year with regulators from the federal government and took measures to legalize the banking of marijuana proceeds . Unfortunately , according to the Bank Secrecy Act ( BSA ), which is enforced by FinCEN , banks accepting money from selling substances that are illegal on the federal level must first get approval .
To that end , FinCEN has released documents and guidelines for doing just that , allowing banks and credit unions to operate with marijuana companies without violating the BSA . The problem is , those documents and guidelines aren ’ t laws . They may be seen as “ permission ” from FinCEN , but they don ’ t change the fact that , technically , cannabis funds could be considered money laundering by the federal government . To that end , there are additional regulations which can be followed , including the filing of suspicious activity reports with FinCEN to let them know precisely what is going on .
So what does all this mean ? Well , it means that it works , but it doesn ’ t work well . These accounts require a lot more work on both the front end and the back end . That leads to extra expenses on the part of banks and their clients , with these types of accounts sometimes running up $ 1,000 in charges per month . That is no small chunk of change for most business owners , which again brings them back to square one at times : either don ’ t do business or do it yourself and deal with the cash .
While the issue has been solved for now , in states like Colorado — which have had thriving marijuana businesses for years — and in states like Michigan — which have recently “ gotten into the game ”— some state government intervention is still required . The same issues that companies encountered elsewhere when dealing with banks are present here and , thus , the same problems exist . Security , fraud , additional administrative load on business owners — all could be avoided by simply working with banks to allow traditional business arrangements .
The main point is that something has to change with the way banking is being done for marijuana companies to help everyone involved , including the government . It doesn ’ t do anyone any good to promote security risks and force business owners to innovate new ways to pay taxes on , and deposit , their legally tendered profits .
31