Why Marijuana Businesses Can’t Get Bank Accounts
Why Marijuana Businesses Can’t Get Bank Accounts
Although his marijuana business (DENVER) makes millions of dollars in revenue, Tim Cullen is having a hard time getting a bank that can accept his money. Having tried operating a total of 14 checking accounts (all of which failed), Cullen says that a bank recently closed all his bank accounts, including a college savings account for his son. Cullen is not the only marijuana dealer having banking issues; the U.S.A Federal law has prohibited banking institutions in the country from accepting marijuana sales money. As a result, those running legal marijuana businesses in the country cannot get loans from the leading financial institutions and have to make their tax payments in cash.
In the past years, some community financial institutions have been offering their services to operators in the cannabis industry. This was after a statement by the U.S. Treasury and Justice departments that they will not be haunting the community institutions that maintain a keen eye on their clients and report them if they are engaged in fraud activities. Since its legalization, the marijuana industry has grown considerably, recording sales of $5.4 billion in the year 2015. Although this figure is projected to increase in years to come, the large banking institutions are still reluctant to serve this industry.
Expected Growth in the Marijuana Business
Currently, the use of marijuana for medical purposes is allowed in Twenty-three states including Phoenix Arizona and Las Vegas Nevada. Additionally, the use of this product for recreational purposes is allowed in four states. Recently the Senate in Vermont approved a bill legalizing adult use of marijuana. Voters in other states, including Massachusetts, Nevada, Arizona and California may also vote for the legalization of adult marijuana use in the near future. Currently, all the states expect Colorado, which was the first state to legalize the use of this product, to offer a banking solution for the expanding industry. However, Andrew Freedman—the director of marijuana coordination in Colorado—is for the opinion that a banking solution for the industry will be brought about by changes in federal law.
The Lack of Banking Services for the Industry
Cullen is not a spokesman for the marijuana industry in Colorado, but has been it voice for a while. The former high school teacher and current co-owner of Denver says that the designing of his stores was inspired by his mother. While Cullen operates a clean marijuana business, no banking institution is ready to accept him as their client. According to Cullen, the business has a credit union, current account—through which direct deposits for employees and tax payments is done. Since banks are not ready to work with his marijuana business, the company cannot process debit and credit card payments.
To remedy this, there are ATM machines at each of their stores. At the end of each day, the company used armored cars to carry all the money generated during the day for depositing. While officials refused to commend on the figure, U.S. Rep. Ed Perlmutter’s office reported that about 40 percent of the marijuana businesses in Colorado do not have any bank accounts. According to Freedman, this percentage could be dropping because there has been a reduction in tax revenue paid by these businesses in cash.
While more cannabis businesses may be getting banking services, the services they can get from leading banking institutions are few and very expensive—which makes them hold onto as money as they can. The availability of loose cash in large quantities ahs not only attracted an increased crime rate, but also makes it difficult for the state to ensure that all the marijuana businesses are paying their appropriate tax dues. Such facts show how difficult it can be for those operating marijuana businesses to get bank accounts.
Minimal Intervention by the States
The various attempts by Colorado and Arizona dispensary advocates have borne not fruits. This has revealed the lack of capacity—on the part of the states—to solve this banking problem. Legislators endorsed the formation of a marijuana credit co-operative in May, 2004. According to them, this institution would not need to have deposit insurance. However, the formation of such an institution has not been possible until now because the Federal Law would not approve its formation. In the same years, the law makers proposed the formation of a credit union for the industry, but its access to a master account was denied by Federal law.
Officials in other states that have legalized the use of marijuana face similar challenges as they try to combat the banking problem facing the industry. For instance, officials in Alaska and California have endorsed the creation of a state-run bank. This idea has not materialized to date. It is unanimously believed that these banking problems would go away, if marijuana was removed from the dangerous drugs list by the Federal government. However, the chances of this happening are very slim; for two times now, a bill seeking to bar regulators from penalizing banks that offer their services to the marijuana industry has failed to go through.
Working out a Solution
The creation of new financial institutions to serve the cannabis industry has been rendered impossible by regulatory authorities. However, Obama’s administration indicated that it will not be penalizing the existing banking institutions for offering their services to marijuana clients. Additionally, the largest credit union in the state is currently serving one of the dispensaries using marijuana for medical purposes. The union has intentions to expand its services in the industry to include more than the insured depository accounts it is currently offering its cannabis clients. This presents some banking options for marijuana businesses.
Other states, such as Oregon and Washington are striving to eliminate cash transactions in the industry. In this regard, PayQwick—an intermediary company—offers electronic money transfer services for various players in the marijuana industry, including growers, customers and sellers. These two states have also applied various measures to enhance security, including the use of security cameras and safety glass. Again, the state is also having a hard time auditing the cash-only business. While the current government has temporary measures in place to ease the problem for the states and the cannabis businesses, a permanent solution is yet to be found.
As people wait for the Congress in Colorado to offer a lasting solution, state officials are continually meeting with credit union and bank boards to see how they can negate the federal law. Cullen thinks that the current baking problem being experienced by cannabis businesses cannot get any worse. As such, he thinks that things are going to get better in the near future.