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Why The Cash-Only System Of The Cannabis Business Is Awful

By Roger Malespin  photo/istock/RoschetzkyIstockPhoto

Despite the proliferation of cannabis news and decriminalization laws across the country, there are still a good number of people who do not understand how difficult and even dangerous it is to have a cannabis business in the U.S. today. The federal classification of cannabis as a schedule 1 drug has lots of ill effects on the drug and business as a whole, but the most important of which is the that money from cannabis businesses cannot be used in the traditional banking industry.

If you think that’s something that one can get around easily, think about these facts:

- any banks that do businesses with marijuana companies expose themselves to money-laundering or racketeering charges under the federal Controlled Substances Act.
- The more successful a cannabis business is, the more cash they will have lying around. Criminal gangs have successfully targeted these businesses before and will certainly do so again.
- Without a bank account, marijuana businesses can have trouble managing payroll, getting business loans, and obtaining mortgages or credit cards. The businesses that manage to somehow get bank accounts are never secure because they are always at risk of the account being closed.
- Having to stockpile cash, even if it doesn’t get stolen, leaves the saving open to accidents, natural disasters, and other hazards. Additionally, this money cannot be insured by banks so it’s a total loss if it happens. 
- In order to safely transport their business money, many of them pay extra cash to armored car companies for protection. This is an expensive endeavor for businesses that are already starting at a loss, and even some of the armored car companies won’t touch cannabis money.

These are just a few of the problems legal businesses are facing in the current climate. The industry is projected to hit as much as $21 billion in the next three years, which is far too much for a cash only business to operate. You can also bet that the IRS will be thinking along the same lines - they really don’t like missing out on potential taxes.

It’s especially difficult in a cashless society like ours to operate this way. It’s common to find several ATMs in or around cannabis shops because they can’t process debit or credit cards payments. It’s slower and dangerous for customers.  Loose cash also makes it harder for the state to track businesses’ finances to make sure they are obeying the law and paying their taxes. And in order to get a bank account, some businesses will funnel their cash through a shell company. 

Colorado, arguably the vanguard state of the legalization movement, has shown that even when lawmakers try to skirt or amend rules for cannabis businesses, they still aren’t very effective. In May 2014, lawmakers authorized a new class of financial institution called a cannabis credit co-operative, which wouldn’t have to acquire and maintain deposit insurance. But no such institutions have been formed so far, partly because the Federal Reserve isn’t likely to approve them.

All of these problems and more would vanish immediately if the federal government changed the status of cannabis as a schedule 1 drug. A few lawmakers have tried to remove penalties for financial institutions that serve cannabis companies but they cannot even get a hearing on the subject, let alone a bill to consider. It’s almost certain that the schedule 1 classification will change in our lifetime, but for the countless small cannabis businesses in the country the change cannot come fast enough.