.Rolling in Cash, Cannabis Businesses Seek Banks

California dispensaries have had to navigate a number of systematic changes since voters approved the good green for recreational use more than a year ago. But for most, one thing that hasn’t changed is their cash-only status—most cannabis-related businesses can’t accept electronic card payments because banks still refuse to do business with them.

Among the regional marijuana manufacturers and licensed cannabis retailers in Santa Cruz County lucky enough to have a bank account is edibles brand Big Pete’s Treats. For the past several years, Santa Cruz Community Credit Union welcomed local ganjapreneurs like Big Pete’s with open arms, enabling them to minimize cash transactions. According to Jim Coffis, deputy director of the cannabis organization Green Trade, it “was the first financial institution that I knew of in the county that accepted cannabis businesses as clients.”

But that seems to have changed. Big Pete’s CEO Pete Feurtado Jr. says that he just received a letter from the local credit union “basically kicking us out of the bank” after an established business relationship of several years. His company has until the end of the month to find a new banking establishment—if they can even find one willing to accommodate them.

“It’s very difficult for a new (cannabis) business to get into a banking situation,” Coffis says. “When you open an account, you have all kinds of documents showing you’re the owner of the account, and your sources of cash, to prevent money laundering. The first sign of money laundering is a lot of cash, and they’re treated exactly like a terrorist organization in terms of the scrutiny which the government has—and they have put that onto the banks.”

Feurtado says that while it’s been good to have a bank, his business has faced a number of hassles that others don’t. “They ask for more compliance and information than the state,” Feurtado said. “They’re asking about every little wire transfer.”

Most banks are still hesitant to accept cannabis businesses due to fears of running afoul of federal law. State lawmakers tried unsuccessfully last year to develop a banking system for the marijuana industry, but state Sen. Bob Hertzberg (D-Van Nuys) hasn’t given up on the issue. He recently revived the failed bill as SB 51, which would basically mirror his original SB 930 and create a framework so private banks or credit unions could issue checks to dispensaries for paying taxes, rent and other business expenses. Dispensaries could also buy state and local bonds to help earn interest on their deposits.

Although SCCCU did not reply to a request for comment, its apparent rejection of Big Pete’s isn’t new in the formerly maverick marijuana industry. Dispensaries, farmers and manufacturers from around California have all reported being shut out from traditional banking institutions, or forced to constantly switch places.

Running a cash-only business can be a serious inconvenience—a fact even the state admits. Last year, former California Treasurer John Chiang said the statutory “stalemate” was making cannabis businesses “targets for violent crimes and putting the general public in danger” by forcing them to handle large quantities of cash.

Chiang also noted that it “created a nightmare for state and local government revenue-collecting agencies.” The California Department of Tax and Fee Administration does not accept cash payment unless an exemption is requested. One concentrates manufacturer said he has to schedule an in-person appointment to pay Uncle Sam.

Feurtado says that, “It’s absolutely a security risk” to deal with bags of cash every day. “We’re the top-selling baked good in the state right now, and 95% of our customers pay us with cash,” he says. “It’s not fun having to deal with all of that cash. We love checks, or at least we did when we had a bank account.”

Cannabis companies also pay indirectly for working only with cash; ATM machines are a liability that can drive up dispensary insurance rates, and some businesses hire armed security. Then there’s the steep fees levied by banks that take on marijuana businesses.

“They’ve basically charged us around $1,000 a month for the last few years just to put money in the bank,” Feurtado said about his account with SCCCU. “We don’t get anything like a line of credit, things a normal business would be able to get. We just deposit our cash.”

Coffis likened such fees “to an additional tax on their operating costs, as well as a major pain in terms of having to deal with all the ever-changing compliance issues.” Because so few banks will accept the cannabis industry, those who do are “reaping the benefits of significant fees that they’re collecting” at the expense of a captive audience.

“They do have additional costs themselves in terms of handling all that cash,” Coffis says. “Some fees are legitimate, but if the federal credit union were to get into it, or another credit union, there is the opportunity for some competition to keep the lid on the financial costs.”

Being accepted by mainstream banks may take years, but Congress did recently introduce HR 1595, which aims to create protections for banks working with legitimate marijuana businesses. Whether the Democrats’ bill makes it through the GOP-controlled Senate, however, remains to be seen.