America’s all-cash cannabis industry is becoming a logistical and security nightmare

Entrepreneurs are finding ways around banking restrictions – some of which seem straight out of ‘Breaking Bad’.

AMERICA’S CANNABIS INDUSTRY may be booming, but its entrepreneurs are finding the all-cash business a logistical, security and administrative headache as they try to manage all the money they’re making.

Legalised for medical purposes in 29 states and recreational use in eight, the drug remains illegal under federal law.

Most banks therefore refuse to have anything to do with the industry, forcing marijuana dispensaries across the country to operate only in cash, keeping bagfuls of dollars in their heavily guarded backrooms and employing discreet couriers.

“It’s a very serious issue,” says Steve DeAngelo, a leading cannabis activist and founder of California’s Harborside Center, a medical marijuana dispensary company.

The same is true for marijuana growers, says Justin Calvino, who grows cannabis in northern California’s so-called Emerald Triangle and complains that entrepreneurs like him also have no choice but to work almost exclusively in cash.

“As farmers, we are all cash and it’s probably the most inconvenient thing,” he said.

Innovative solutions 

Only 300 banking institutions – mainly regional banks and financial cooperatives – of nearly 12,000 in the United States agree to work discreetly with clients in the sector, according to the Standard and Poor’s ratings agency.

And although small and medium-sized enterprises are increasingly managing to find banks or online institutions willing to do business with them, they run the risk of being shut down any time.

National Weed Day 2016 - Denver
Scene from a pro-marijuana celebration in Denver.


Source: Matthew Staver

Any significant cash deposit can draw the attention of the tax authorities, something Calvino found out over $3,000.

“I’m on my sixth bank account in the last five years,” he said.

Michael Katz, who heads Evoxe Laboratories – which makes cannabis vaporisers and aromatherapy oils mixed with cannabis – said he had $13,000 frozen for 19 days by Square, a digital payment system.

But entrepreneurs say they’re finding innovative ways to survive the restrictions and deal with the large amounts of cash, some that seem straight from the TV series “Breaking Bad”.

One marketing manager says she once received a message from Venmo, a popular payment system, asking that she no longer use its services.

She turned to Paypal, hoping her company’s description of its cannabis-infused oils as “health products” won’t be scrutinised.

Other cannabis operations have turned to the virtual currency Bitcoin while still others have developed intricate financial schemes.

“People set up different entities, not directly related to the cannabis legal entities, as business management service companies,” Katz said.

The Obama administration largely chose not to enforce federal laws on marijuana and in 2014 gave the banking sector the green light to do business with the industry in states where the drug is legalised.

But it’s still unclear whether President Donald Trump – whose attorney general, Jeff Sessions, is an outspoken opponent of legalisation – will maintain the status quo or crack down on the industry.

Cannabis as business
Dana Rohrabacher, a Republican congressman in the US and the founder of the Cannabis Caucus.


Source: DPA/PA Images

Stringent security

Given the uncertainty, many growers and entrepreneurs stick to cash as much as they can.

“It is dangerous and you have to keep multiple options,” Katz said.

For many people, this cash is just hidden or kept in storage.

One cannabis grower in southern California who did not want to be identified says he keeps thousands of dollars in a safe under round-the-clock surveillance.

The risks are obvious.

One of Calvino’s employees made off with “$40,000 from underneath our bed and that really hurt,” he says.

At Harborside, accessing any of the company’s buildings is like trying to get into Fort Knox.

Photo identification and clearance by security guards is required for entrance.

“We have approximately 50 surveillance cameras,” DeAngelo said.

My employees have their fingerprints taken and as they enter, they have to have their fingerprints read by a reader to go through the door.

His workers painstakingly count wads of money by hand in a vault and transport some $100,000 in cash each month as tax to the city of Oakland.

“There’s a lot of space just taken up by small coins wrapped up in rolls,” he said.

But industry experts say change is surely on the way.

As the burgeoning multibillion dollar industry flourishes, says Troy Dayton — co-founder of the leading cannabis consultancy firm Arcview Group — the federal government and banks will no longer be able to look the other way.

It’s just going to become too big for banks to not jump in and take the risk.

– © AFP 2017

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