The US cannabis industry has a very unique cash flow problem – too big.
Marijuana can be legally sold in 36 states in the United States and the District of Columbia (DC) for medical purposes and in 15 of them and in DC for recreational purposes. But it’s still illegal at the federal level, which means most banks won’t serve the industry in case they violate money laundering laws.
With the COVID-19 pandemic and increasing legalization resulting in increased cannabis use, producers, manufacturers and retailers in the industry are inundated with cash, adding risks and costs to the most basic of business transactions: paying employees and file taxes to find a place to store their income.
“All this money flowing is just a recipe for disaster,” said Smoke Wallin, general manager of hemp-based health products manufacturer Vertical Wellness Inc. “How do you explain that? Where do you keep it? How do you move it? Even in a safe, it is a risk to employee safety. ”
Ryan Hale, a U.S. Navy veteran and co-founder of cash management firm Operational Security Solutions, had to persuade a weed grower in California to stop hiding money in a tree. On another occasion, Hale had to help a bewildered cannabis retailer who had lost count of dollar bills spilling out of his store’s lockers.
Sales of legal cannabis in the United States rose 30% to $ 22 billion last year, more than the $ 17.5 billion Americans spent on wine, according to Euromonitor data. Sales are expected to increase by over 20% this year.
The sales boom could have left cannabis companies with more than $ 10 billion in cash to manage last year, according to research firms Headset.io and New Frontier Research.
Big guys can afford unmarked armored vans and heavily armed guards to haul cash, but smaller operators have to rely on themselves.
A weed grower in Los Angeles, who declined to be identified, said he had to carry $ 120,000 in a bag and drive six hours from Los Angeles to Oakland to pay a supplier instead of catching a flight and put yourself at greater risk of being stolen. or money confiscated by airport security.
During the last weekend of May 2020, when protests erupted across the United States against police brutality and racism following the murder of George Floyd, there were at least 43 attacks on weed dispensaries. along the West Coast, according to the police review of the Cannabis Leafly media site. reports and statements from business owners.
One of the stores attacked was Cookies Melrose in Hollywood, owned by rapper Gilbert Milam Jr, known by his stage name “Berner”.
He suffered damage in the “high six figures” when about 100 people raided the store on May 29, a company spokesperson said.
A DIFFERENT BALL GAME
As cannabis legalization gains momentum in the states – New York and New Mexico will allow recreational marijuana over the next several years – politicians are looking for ways to make it easier for the industry to access banking services. .
The House of Representatives passed a bill in April that would allow cannabis companies to have bank accounts, get loans, and accept credit card payments, but it may fail. not in the Senate because Senate Majority Leader Chuck Schumer wants to work instead on lifting the federal ban. on cannabis.
A full federal go-ahead is the industry’s ultimate goal, but it doesn’t count on Schumer’s commitment to make it happen next year.
Shares of U.S. cannabis companies, listed in Canada because they are excluded from U.S. stock exchanges, have risen only 9% so far this year according to the AdvisorShare Pure US Cannabis ETF and nearly 29% compared to at the February peak.
In the meantime, marijuana companies must seek out friendly banks.
Only 515 of the more than 8,200 federally registered banks and one in 30 credit unions in the United States were working with marijuana companies at the end of 2020, according to data compiled by government agencies.
The service comes at a premium because federal illegality increases the amount of paperwork required by banks.
Chris Driessen, general manager of jar producer SLANG Worldwide Inc (SLNG.CD), said it was costing his company $ 40,000 to benefit from banking services in Colorado, one of 12 states in which the business operates. Normally, a business checking account will cost less than $ 100 to open.
“Standard banking for businesses is often 95% cheaper than the cost of cannabis banks,” Driessen said.
Maps Credit Union is one of the oldest financial institutions working with the cannabis industry. It has taken more than $ 1.79 billion in cash deposits from the Oregon area since January 2017, but this has required the filing of tens of thousands of reports required as part of financial crime monitoring, the guidelines. of FinCEN for cannabis banks.
“Serving these businesses doesn’t come cheap. It’s a whole different ball game, ”said Rachel Pross, Maps COO, highlighting its use of expensive anti-money laundering software, external auditors and legal advisers.
As demand for pot grows, investors have invested more than $ 2.5 billion in cannabis tech startups since 2018 and special purpose acquisition companies or SPACs that target the broader cannabis industry, have raised $ 3.9 billion to date, according to Viridian.
In the industry, however, some cannabis executives cannot get loans and even struggle to maintain personal accounts.
Berner, owner of the cookie store chain, said many banks had refused to partner with him since entering the cannabis line in 2015.
“My clothing business made $ 32 million last year, but several banks asked us to leave,” he said. “You would like to walk into a normal banking establishment and be treated like a normal human being.”
Our Standards: Thomson Reuters Trust Principles.