Getting high is increasingly legal, but legitimate businesses continue to face a black-market problem: Where to stash the money?
The owner of a successful marijuana dispensary in Southern California was abducted from his Orange County home before being tortured and mutilated by kidnappers who mistakenly believed that he had buried tens of thousands of dollars somewhere in the Mojave Desert.
In central Los Angeles, a 28-year-old employee of a pot shop was left to die in a pool of his own blood, shot by masked men who witnesses saw escaping with a duffel bag full of cash. In South LA, a teenager was shot dead by a dispensary security guard during a botched robbery attempt.
Getting high has become a lucrative legal business in nine American states and the District of Columbia, but legitimate business people continue to face a black-market problem: Where to stash all that money?
Not in a bank. While California has allowed medical for years and fully legalized adult recreational use of marijuana in January 2018, the state’s largest cash crop remains illegal under federal law, which means mainstream banks open themselves up to federal prosecution if they take money from marijuana sales, even in states where it is legal. The result: a large majority of those who work in this multi-billion dollar industry are often forced to deal almost exclusively in cash.
“It is a sad, misfortunate, bad application of public policy,” Aaron Klein, policy director of the Brooking Institution’s Center on Regulation and Markets, told The Daily Beast. “One of the purposes of decriminalizing and legalizing marijuana is to reduce crime.”
MedMen, one of the largest cannabis companies in the world with stores in California, New York and Nevada, recently raised roughly $135 million in venture capital money. Its co-chairman, Chris Leavy, is the former chief investment officer of BlackRock Inc., “the world’s largest money manager,” according to Bloomberg. And yet no national financial institution will touch that money.
“Banking is definitely a challenge for this industry. I think everybody recognizes that,” MedMen spokesperson Daniel Yi said. “As an industry, of course we would like to have access to full banking services, including commercial loans, a line of credit — that’s what every business runs on.”
For now, MedMen relies on one of the few small, local banks and credit unions that will accept what they know to be cannabis cash. Federal regulations still require MedMen’s bankers to file suspicious activity reports regarding their accounts, a compliance cost, and prosecutorial risk, that’s not worth it unless a company is of a decent size. “It gives us a competitive advantage,” Yi admitted, but a mature industry needs lines of credit, not just checking accounts.
Federal policy is unlikely to solve the problem under the current administration. Attorney General Jeff Sessions thinks “good people don’t smoke marijuana.” He started off the year by rescinding Obama-era guidance that had deprioritized the prosecution of state-licensed and compliant marijuana sellers.
In hopes of finding a solution, U.S. Senator Jeff Merkley, a Democrat from Oregon, has introduced a bill, the “SAFE Banking Act,” that would prohibit federal regulators from penalizing financial institutions that do business with state-licensed cannabis firms.
And Senator Elizabeth Warren, a Massachusetts Democrat, has teamed with a Colorado Republican, Cory Gardner, on legislation that would amend federal law so that financial transactions involving legal weed would no longer be flagged as unlawful trafficking. But in a chamber led by Mitch McConnell, a Kentucky Republican who likes industrial hemp but not recreational weed, it’s unlikely the proposed bills will become law.
California, with the world’s fifth biggest economy and its largest cannabis market, has instead started to consider local options.