In the 2018 midterm elections last November, Michigan voters approved a measure to legalize a retail adult-use cannabis industry. As that industry begins to gain its footing, cannabis companies are looking ahead to the banking issues they’re soon to face. Fortunately for them, legal marijuana industries in other states have already shown that there are a number of ways around cannabis’ well-known cash crisis. And Michigan’s cannabis companies are availing themselves of many of those tricks. For now, however, the banks housing the industry’s cash are trying to be low key about it. But it looks like the secret is out.
The perennial cash question that’s long plagued the legal cannabis industry is on the table again in Michigan. And companies know that it’s an urgent question, thanks to a few highly publicized provisioning center (read: dispensary) robberies. To put it simply, federal prohibition has made much of the U.S. industry “cash only.” Due to regulations against banking the proceeds of an illegal operation, major U.S. banks have refused to work with the cannabis industry. Without the financial services all other legal businesses can rely on, marijuana companies face some major challenges. How to store and transport all that cash? How to handle payroll and other essential business transactions, like paying taxes? It’s a headache at best.
Furthermore, large amounts of liquid currency, belonging to whoever holds it, make cannabis companies tempting targets for heists, endangering workers and putting the entire operation in harm’s way. At this point, just about anything is better than handling massive amounts of cash. But for cannabis companies, some of the best options have been community and regional banks, and credit unions. More of these smaller institutions, often geared toward supporting local businesses, are beginning to provide essential financial services—if not comprehensive ones—to cannabis companies.
It’s not that small banks and credit unions aren’t subject to the same federal regulations as large banks. Rather, working with cannabis companies poses less risk to the “brand,” and to the reputation of the institution. Or at least that’s why major banks have so far opted out. They say they’re concerned over losing (more conservative) clients who might see the bank’s involvement with weed as too large a risk.
The concern over optics isn’t entirely wrong. Banks that do provide services to state-legal cannabis companies have to report all transactions to the federal government, in compliance with the U.S. Treasury’s Financial Crimes Enforcement Network requirements.
The same logic has been at work in Michigan, where community banks and credit unions are reaching out to the industry, but trying to keep their activity under wraps. “The first rule about banking cannabis is that you can’t talk about banking cannabis,” said Paul Samways, an accountant with Cannabis Accounting. “The second rule about banking cannabis is that you can’t talk about banking cannabis.”
The need for Fight Club-style secrecy is perhaps a bit overstated. And in fact, it could end up hurting small banks and credit unions. If a bank isn’t aware that a client is depositing revenue from a cannabis business, it could be liable for federal money laundering charges. Nevertheless, banks are keen to not disclose whether they have any cannabis industry clients. Neither do they want to be seen accepting large cash deposits from people just walking through the door.
And that has led banks and the marijuana industry to resort to a number of go-betweens. Sometimes, banks set these up on their own. Using armored truck services, cannabis companies can deposit funds while vehicles haul the actual cash to a Federal Reserve Bank.
But there are other ways around the cash-handling issue: third parties. Third-party companies like PayQuick are sprouting up across the country, just to provide cash banking services to cannabis companies. Using a hardwired bill verification safe on sight, companies deposit their daily earnings. Those funds get wired to the company’s bank account and the cash becomes the third-party company’s. Then, the company picks up the safe with an armored vehicle and transports it to a Federal Reserve Bank.
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