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Many pot firms strapped with cash
Author: Cannabis Chronicles 15/07/2017 - 13:00:00

LOS ANGELES — Slip a fresh $20 bill under the bulletproof teller window of Donnie Anderson’s Medex marijuana dispensary — perhaps for a gram of cannabis or some THC-infused toffees — and the legal tender is transformed into something else: drug money. 

Though the transaction is legal in California, under federal law that bill is not much different from the contents of a drug cartel’s safe — cash that most banks won’t touch. 

So how is Anderson supposed to pay his employees, suppliers or business taxes? He deposits cash, in drips and drabs, into an account held by a limited liability company that his bank thinks is a property management firm. 

“The bank doesn’t know what we do,” he said. 

If this sounds like money laundering, you’re not far off. 

Yet consider this: That same $20 exchanged at Canndescent, another cannabis company, takes a direct and transparent route into the financial system.

When the marijuana cultivator sells its product to a dispensary, one armored car drops off the pot and another picks up the cash payment — and then heads to a downtown Los Angeles branch of the Federal Reserve Bank.

There the cash is deposited into the account of a local credit union, one that’s eager to do business with Canndescent.

“After all the horror stories I’ve heard, it does seem like a little bit of magic,” said Tom DiGiovanni, Canndescent’s chief financial officer.

Indeed, though the same laws apply to Anderson’s dispensary and Canndescent’s farm, the world of cannabis banking is so full of contradictions that one business can truck money to a federal facility while the other is left to play a high-stakes game of hide-and-seek with its cash.

“It’s the early stages of the Wild West,” said California Treasurer John Chiang, who is leading an effort to reform cannabis banking, a problem dating back to 1996 when California legalized medical marijuana.

With recreational use set to become legal next year under Proposition 64, cannabis sales in the state are expected to top $7.5 billion in 2020, up from about $3.3 billion last year, according to data provider New Frontier and cannabis investor network Arcview Group.

But while Proposition 64 broadened the legal use of pot, it did nothing to relax banking regulations.

“It left significant questions unresolved,” Chiang said. “How do you handle the taxation of cannabis dollars and the banking of billions of dollars of transactions that are going to take place here in California?”

Last year, Chiang created a group of cannabis and banking industry trade groups, attorneys, regulators and others, trying to figure out how to bring the cannabis industry into the financial mainstream. But it’s a vexing challenge, and one that cannot be solved by the state alone.

Marijuana is legal for medical use in 29 states and for recreational use in eight, yet the federal Controlled Substances Act lists it alongside heroin and LSD as both dangerous and having no accepted medical use.

And for banks, federal laws are paramount.

Banks and credit unions can guarantee deposits because they have federal deposit insurance. They rely on Federal Reserve systems to make wire transfers, handle electronic payments and process checks. And they all answer to at least one federal regulator.

Banks and credit unions also are required to tell federal authorities if they suspect that their customers might be engaged in illegal activity. And when it comes to following those rules, the stakes are high.

“The FDIC could step in and shut down a bank, and it can do that with very little notice,” said Julie Hill, a law professor at the University of Alabama and former finance industry attorney who has studied cannabis banking. “Nobody’s ever gotten their bank brought back to life after it’s been closed by regulators.”

Because of that, many banks won’t even take the risk.

“From a federal level, it’s illegal,” Jim Brush, chief executive of Summit State Bank in Santa Rosa, Calif., told Chiang’s working group in May. “It really doesn’t matter what California does.”

Still, federal officials have cracked open the door for banks and credit unions.

In 2013, the Justice Department said it would focus its marijuana-enforcement efforts on preventing sales to minors, interstate trafficking and a handful of other crimes.

The following year, the Financial Crimes Enforcement Network, or FinCEN, part of the U.S. Treasury Department, released guidelines for financial institutions that want to work with marijuana companies. They require additional reporting and demand that banks monitor companies for activities that remain Justice Department priorities.

No clear protections

FinCEN reported that 368 banks and credit unions were serving the industry in March, up from fewer than 300 at the beginning of 2016. But that’s a tiny fraction of the nation’s nearly 12,000 banks and credit unions.

Hill said so few institutions are playing along because FinCEN’s guidelines don’t offer clear legal protection. And some banks don’t want to be in the uncomfortable position of policing cannabis companies.

“How would you know a business isn’t selling to minors unless you’re in the store all the time?” Hill said.

What’s more, with a new administration in the White House and avowed marijuana opponent Jeff Sessions running the Justice Department, it’s not clear whether the feds will take a harder line on pot.

With many cannabis companies unable to get bank accounts, they are often left to deal in cash, which is inconvenient and dangerous.

Take Jerred Kiloh, owner of Higher Path Collective. His Los Angeles dispensary had sales of about $4 million last year, so he owed more than $200,000 in taxes to Los Angeles alone, he told Chiang’s group.

Imagine, Kiloh said, carrying that much cash.

“Right now, at the downtown office of finance, there’s a six-story parking structure 500 yards away,” he said. “I have to walk through what is essentially a homeless encampment with a duffel bag full of cash, walk across the street, go through security and then sometimes stand in line.”

Kyle Kazan, a former area police officer who runs a firm that invests in cannabis growers and retailers, said the lack of access to banking poses big safety risks.

“Real lives are in danger because there’s so much cash in play here,” Kazan said.

Original article from cannabis-chronicles.com/:Many pot firms strapped with cash



15/07/2017 - 13:00:00
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