Banks and marijuana dispensaries are getting closer to having a more cohesive relationship. But not close enough to bring cannabis sellers out of the high-risk category.
Since recreational cannabis was legalized in eight states, the U.S. still hasn’t found a way to make noncash payments the norm because those stores are still illegal on a federal level. Ironically, the less access these shops have to mainstream banks, the more they begin to resemble banks.
For the past 12 years, Janice Hardoon has owned Koreatown Marijuana Collective in Los Angeles.The store has secure bank-vault-like doors, gates, window coverings, a security guard and is in a good neighborhood — all of which greatly reduce the risk of handling cash payments, Hardoon said.
California proposed a bill, SB 930, that would ease make payments easier for stores like Hardoon's. It would let financial institutions offer some banking services through limited-charter licenses for banks and credit unions. They could then issue special checks to pay state or local fees and taxes, rent associated with marijuana dispensaries or to buy state or local bonds or warrants.
The bill passed in the state Senate and was passed to another committee. The legislature reconvenes on Aug. 6.
“Although it looks like there is hope on the horizon, it’s going to take an act of Congress literally to have banking for the cannabis industry,“ Hardoon said.
Even if the California bill is passed, stores will still endure hefty fees, she said.
For the past six years, Paybotic, a payment processor and consulting firm, helped build relationships between banks and marijuana dispensaries, growers and distributors.
The number of financial institutions that are open to cannabis businesses is growing, said Max Miller, Paybotic's president.
It is illegal for federally-chartered banks to work with marijuana stores, and for now, only state-chartered banks — in states where cannabis is legal — can work with sellers. Some federally chartered banks are taking on the marijuana business, though their cannabis banking programs require rigorous compliance efforts, Miller said. Large commercial banks are less likely to put the entire business at risk.
“We know from the federal perspective, all transactions in this industry are illegal, including cash,” Miller said. “But that hasn’t stopped people for years with banking or processing payments.”
To open a bank account and avoid the fees associated with a high-risk category such as marijuana, sellers may not always be forthcoming about their identities. But they will find benefits to being more open about the nature of their operations, said Eveline Dang, vice president at Paybotic.
Paying high fees is still more favorable than not disclosing the nature of cannabis operations to the banks, which may result in cannabis businesses losing access to banking when the truth gets out, Dang said.
“Sometimes we’ll see bank accounts be closed twice in one month and they’ll hop from bank to bank and sometimes they’ll find their home,” Miller said. “Sometimes they’ll just need to keep moving.”
Hardoon said when large federal banks see her connection with cannabis, they closed her business’ bank account — as well as her personal one. “The minute the word cannabis shows up, it’s a trigger,” Hardoon said.
Paybotic needs to cover itself as well, and Miller said it tries its best to adhere to state compliance and PCI security standards.
“The federal government can come knocking on our door and say we’re money laundering and there are two ways to look at payment processors in this industry — as payments processors with banking institutions or defined as money launderers,” he said.
Dang views California as a pioneer state for cannabis merchants, but in the meantime, stores will still have hurdles.
“Banks don’t know what to do, the federal government doesn’t know what to do. So it really sounds like a nice solution — just don’t touch them,” Miller said. “But you need to be able to get this money out to pay your employees and run your business.”