The U.S. cannabis business has a particular cash flow problem – too much of it.
Marijuana can be legally sold for medical purposes in 36 states and the District of Columbia (DC) and in 15 of them and in DC for recreational use. However, at the federal level, this is still illegal, which means that most banks will not serve the industry if they break money laundering laws.
With the COVID-19 pandemic and increasing legalization leading to an increase in cannabis use, producers, manufacturers and retailers in the sector are inundated with cash, covering the most basic business transactions from paying employees to filing taxes to paying Finding a storage location adds risks and costs to income.
“All the money flowing around is just a recipe for disaster,” said Smoke Wallin, general manager of hemp health products manufacturer Vertical Wellness Inc. “How do you explain that? Where do you keep it? How do you move it? Even in one Safe this is a security risk for employees. “
Ryan Hale, a US Navy veteran and co-founder of cash management company Operational Security Solutions, had to convince a California weed farmer to stop hiding cash in a tree. On another occasion, Hale had to help a confused cannabis retailer who had lost the number of dollar bills overflowing from his store’s lockers.
According to Euromonitor, US legal cannabis sales rose 30% to $ 22 billion last year, more than the $ 17.5 billion Americans spent on wine. Sales are expected to grow more than 20% this year.
The sales boom could have given cannabis companies more than $ 10 billion in cash last year, according to research firms Headset.io and New Frontier Research.
Big players can afford unmarked armored vans and heavily armed guards to transport money, but smaller operators have to rely on themselves.
A Los Angeles weed producer who refused to be identified said he would have to carry $ 120,000 in a bag and drive six hours from Los Angeles to Oakland to pay a supplier rather than take a flight and join one higher risk of being robbed or the money confiscated by airport security.
On the last weekend in May 2020, when protests against police brutality and racism erupted in the United States following the murder of George Floyd, there were at least 43 attacks on West Coast weed dispensaries reports and testimony from business owners, according to Leafly’s police review.
One of the stores attacked was Cookies Melrose in Hollywood, owned by rapper Gilbert Milam Jr., known by his stage name “Berner”.
It suffered “high six-figure damage” when around a hundred people attacked the store on May 29, a company spokesman said.
Another ball game
As cannabis legalization gains traction in the States – New York and New Mexico will allow recreational marijuana for the next several years – politicians are looking for ways to make banking services easier for the sector.
The House of Representatives passed law in April that allows cannabis companies to hold bank accounts, obtain loans, and accept credit card payments. It can’t get into the Senate, however, as Senate majority leader Chuck Schumer wants to work towards lifting the federal ban on cannabis instead.
A full federal green light is the industry’s ultimate goal, but it doesn’t count on Schumer’s promise to achieve it by next year.
According to the AdvisorShare Pure US Cannabis ETF, stocks of US cannabis companies listed in Canada for being banned from US exchanges are up just 9% this year, up nearly 29% from their February high sunk.
In the meantime, marijuana companies need to look for friendly banks.
Only 515 of the more than 8,200 federally registered banks and one in 30 credit unions in the U.S. were working with marijuana companies at the end of 2020, according to government agencies.
The service comes with a premium as the illegality of the federal government increases the banks’ paperwork.
Chris Driessen, managing director of pot maker SLANG Worldwide Inc (SLNG.CD), said it cost his company $ 40,000 to access banking services in Colorado, just one of 12 states the company operates in. Typically, it costs less than $ 100 to open a business account.
“Standard corporate banking is often 95% cheaper than the cost of cannabis banking,” said Driessen.
Maps Credit Union is one of the longest running financial institutions to work with the cannabis industry. As of January 2017, more than $ 1.79 billion in cash has been withdrawn from the Oregon sector. However, this resulted in the filing of tens of thousands of reports required for cannabis banking under the guidelines of the financial crime watchdog, FinCEN.
“It’s not cheap to serve these companies. It’s a whole different ball game,” said Rachel Pross, Maps chief of operations, citing the use of expensive money laundering software, outside auditors and legal advisors.
As the demand for pots grows, investors have invested more than $ 2.5 billion in cannabis tech startups since 2018, and according to Viridian, specialty companies, or SPACs targeting the broader cannabis industry, have $ 3.9 billion to date. Dollars collected.
However, within the industry, some cannabis managers cannot obtain credit and have difficulty maintaining even personal accounts.
Berner, owner of the Cookies Store chain, said many banks have refused to contact him since he entered the cannabis line in 2015.
“My clothing store made $ 32 million last year, but several banks asked us to leave,” he said. “You want to go into a normal banking business and just be treated like a normal person.”
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