The Banking Bind: How Federal Law Is Making Business Difficult for Cannabis Dispensaries 

Although medical marijuana has been approved in Massachusetts for almost 2 years, dispensaries still don’t have access to the bank services they need. While cannabis remains federally illegal, the banks hesitate to serve medical dispensaries despite their treatment as legal businesses by the state. This means that dispensaries won’t have access to conventional loans and will need to operate with cash only, making them akin to very large lemonade stands, except they sell pot. Without a place to store their money safely, dispensary managers say they’re forced to carry large amounts of cash, making them highly vulnerable to theft.

In February, the Obama administration issued guidelines under which banks will be allowed to work with state-legal marijuana businesses without prosecution under federal law. Despite these guidelines, many financial institutions still hesitate to do business with cannabis dispensaries. The guidance imposes such stringent regulatory and legal standards that banks find too much risk involved to give loans to cannabis businesses.

Mark Pipitone, a spokesman for Bank of America stated, “As a federally regulated financial institution, we abide by federal law and do not bank marijuana-related businesses.” According to American Banker, only 105 financial institutions in the country are working with cannabis businesses, making up less than 1 percent of all banks and credit unions in the U.S.

As a result of impaired access to bank services, cannabis vendors turn to private investors when they can’t cover the entire cost of launching a business. This makes them vulnerable to private investors who know that cannabis businesses have so few options, allowing them to charge interest rates as high as 16 to 20 percent, compared to small business loans which typically come with interest rates around 7 and 8 percent.) In addition, medical marijuana businesses without bank accounts are faced with an absurd 10 percent penalty by the IRS for paying payroll taxes in cash.

Some businesses get around this obstacle by setting up accounts without explaining to the bank what the account is for. This is not fraud as businesses aren’t giving any false information to banks, rather they simply neglect to disclose that they are cannabis vendors. However, it is far less than ideal that business owners must result to such tactics just to have safe access to banking, and it is at best only a temporary strategy to circumvent the bizarre cash management due to conflicting state and federal laws. Elan Nelson, business consultant for Medicine Man in Denver, estimates that such accounts typically only last for about six to nine months before banks notice large cash inflows and shut down the accounts.

It is troubling that cannabis dispensary business owners are obligated to carry around thousands of dollars in cash because banks refuse to accept their money. In consequence of being required to carry and transport large quantities of raw cash, cannabis businesses are now enlisting the aid of new security businesses.

“This is no longer about marijuana anymore. This is about public safety. This is about preventing armed robberies and people from getting killed, extorted, or kidnapped,” says Mike Elliott, executive director of the pot lobby’s Marijuana Industry Group. The regulations limiting dispensary businesses access to banking is becoming a public safety issue. Indeed according to one empirical study, carrying physical cash can increase crime rates due to the ease of use and anonymity in transactions.

Some federal officials are concerned about the public safety issues and want to make banking easier and more accessible for cannabis businesses. In July, the House of Representatives voted for a bill allowing banks to work with cannabis businesses working legally under state laws without fear of federal penalization. However, the bill still needs to pass the Senate and receive Obama’s approval and signature before it becomes law. Hopefully we will soon see these backwards federal regulations limiting cannabis businesses access to banking lifted.