Any state that has legalized recreational cannabis (Colorado, Washington, Oregon, Alaska and Washington, D.C.) must face the difficult conundrum of running a federally illegal business in a state legalized environment.
Most, if not all cannabis-touching businesses (such as growers, producers and dispensaries) are forced to operate on a cash only basis as a result. This doesn’t bode well for any of the players involved.
Banks, due to their intimate relationships with the federal government, are reluctant if not refusing to step into the spotlight and essentially go up to bat for cannabis businesses. No one wants to be the first to step into a new arena when it means being made an example of by the DEA. That is in addition to the fact, that when you run a cash-only cannabis business, your cold hard cash smells like marijuana.
That doesn’t mean the government isn’t going to take your money though. Despite the cash being acquired from a business the federal government doesn’t approve, the Feds are willing to overlook where the money came from (thank you, Cole Memo) enough to make sure that cannabis businesses pay taxes. The burn is when you realize that a cannabis touching business can’t take tax exemptions, unlike every other legitimate business in America. This puts many cannabis businesses in the 70% taxable income bracket.
This also means that a boatload of cash is being delivered to the IRS and local state governments. The IRS only recently decided it wouldn’t charge these companies fines for paying in cash. Local governments are hiring more employees and building infrastructure to pay for the extra handling that hundreds of thousands of dollars in cash requires.
We know that cannabis is bringing in a lot of money, but have you seen ten thousand dollars before? Imagine driving home from a legal sale of cannabis to a dispensary with 10 grand that smells like weed, and even the most above board cannabis entrepreneurs begin to break out in a sweat.
The safety issues of a business that strictly works in cash leave it open to targeting by those with malicious intent. The necessity of running a business with a gun under the counter shouldn’t be a societal reality.
Problems like this have an innovative upside.
Marijuana has had a long history of having to fend for herself. Large growers experience the highest level of vulnerability when their plants are ready for harvest when someone can come along and make short work of their profits. Even as medicinal legalization is sweeping across the nation, it’s a brave farmer who will call the police to help defend their business with any level of confidence that they will actually show up.
The cannabis industry will continue to find ways to solve the market problems for itself Click To Tweet
An industry that has to bank for itself has turned to banking technology to keep it’s money safe. Armored trucks, security, bill washing (not laundering) and vault storage have all become hot commodities in the cannabis startup industry.
“Management companies” that manage the financial side of a cannabis business may prove as a quasi-legal stopgap for now, but most seem pretty dodgey. Digital currency like BitCoin, with its history of relatively anarchistic business choices is another possible choice for businesses willing to take a risk on an obscure currency (assuming their customers know what BitCoin is).
Cannabis is struggling to prove itself as a legitimate business while it is not allowed to operate as one.
At the heart of all the legalization efforts are regulations put in place that are meant to bridge the gap between fiscal and regulatory accountability and a market offering that will squelch the black market.
Until banking and card services are offered to cannabis businesses, opportunities for the black market will continue, and questionably legal solutions to this problem will continue to proliferate as a necessity of conducting business.
Marijuana is also unstoppable. That should be evident by now, given the failed War on Drugs, its black market availability and quality that has only gotten better during its prohibition. We’re of the opinion that most cannabusinesses operating in the legal grey area are perfectly willing to operate fully above board – but they are being blocked at every turn, so they continue “making it work”.
When (because we believe it is not a matter of if) cannabis is descheduled, or rescheduled – there will be a breakneck change in business. The solutions that have set up around the banking problem will have to evolve or die. The opportunities for cannabis business will explode overnight as businesses not wiling to risk the wrath of the federal government will jump into the market ready to play.