Cash-heavy marijuana industry faces banking, security challenges

Armored cars. Remote cash collection machines. Blockchain technology. A state-run marijuana bank.

All of these things are being discussed as potential solutions to a major marijuana industry challenge: a lack of banking services and an industry that is likely to be unusually cash-heavy.

“These stores can do $1 million (of business) a month,” said James Smith, an attorney and founding partner at Smith, Costello and Crawford who represents cannabis companies. “You don’t want that to be cash. … The state doesn’t want it, the industry doesn’t want it, even the federal government doesn’t want it.”

But no one has yet figured out how to prevent it. “Everyone’s trying different things, there’s no solution,” Smith said.

Massachusetts is preparing for the first legal marijuana stores to open this summer, with the licensing process beginning next month. Legal marijuana is estimated to be a $1.07 billion business in Massachusetts by 2020. But one pressing question is how does that money move around in a safe and secure way.

A spokesman for the Cannabis Control Commission, which oversees the state’s marijuana industry, said in a statement, “The Cannabis Control Commission is aware of the administrative, compliance, and public safety challenges that other states have faced in the absence of traditional banking institutions within the cannabis marketplace. We are working collaboratively with state banking and credit union associations as well as relevant sister state government agencies to explore solutions and stand up a safe, professionally managed industry.”

In today’s climate, almost no other industry does a significant amount of business in cash.

But the marijuana industry is unique. Marijuana remains illegal federally, which means federally chartered banks cannot accept marijuana money. Credit card companies also will not provide services for marijuana purchases.

Today, only one bank – Century Bank in Medford – is known to do business with Massachusetts’ medical marijuana companies. People can pay for medical marijuana with debit cards. Both the bank and the debit cards charge large fees.

Jon Skarin, senior vice president of the Massachusetts Bankers Association, said all banks are subject to federal law. Attorney General Jeff Sessions’ decision to rescind Obama-era protections for businesses and individuals complying with state marijuana laws added to banks’ hesitance to get involved with the marijuana industry.

The problem is likely to get worse for the recreational side of the business, since certain federal protections that are in place for medical marijuana do not exist for recreational marijuana. Skarin said the banking industry would prefer that these businesses operate within the traditional banking system, but that is difficult.

“There’s a very limited number of depository intuitions that have chosen to do business with the marijuana industry,” Skarin said. “It remains to be seen in Massachusetts if that’s going to change.”

In Colorado, a couple of state credit unions handle most of the marijuana businesses, Smith said. “Hopefully we’ll have a credit union or bank assist us,” he said. “It hasn’t happened yet.”

Much of the money that comes into marijuana dispensaries is cash. Kevin Conroy, a partner at the law firm Foley Hoag who represents several marijuana businesses, said many customers want to pay cash for marijuana to maintain their anonymity and avoid the records that come from using a debit card.

“They like the privacy of the transaction,” Conroy said. “They like the fact there’s not a specific record or receipt given to them.”

But at the same time, a cash business carries a greater risk of robbery and makes it harder to track transactions. Although marijuana dispensaries have cameras and strict security requirements, employees paid in cash risk being robbed when they leave.

Conroy said dispensaries must have proper controls for handling cash – including security systems for handling and storing cash and transaction tracking systems. The state requires seed-to-sale tracking of marijuana plants, and the Cannabis Control Commission has been working on purchasing and developing software that can be used to track the plants.


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