Cannabis business owners are in the marijuana business to make money, which has become a major problem. Cannabis business owners are dealing with a reality in which they are having marketing and retail success that is generating large revenue numbers. The large revenue being generated is coming in the form of cash and cash only, unless the company is an ancillary business and even then there are challenges. Due to the federal government refusing to remove marijuana from a schedule I classification, banking institutions and cannabis business owners are having a tough time finding common ground. While it is true that a number of states have legalized marijuana either for medical use, recreational use or both, many financial insinuations are refusing to work with marijuana related businesses due to fear of facing federal charges for money laundering while the plant is still considered illegal federally.
California has attempted to shield it’s financial institutions from federal punishment by introducing a measure that would allow the banks to open accounts for marijuana businesses without being punished by federal regulators. The measure was voted on and rejected by the state’s congressional committee. For the banks and cannabis business owners, their hands remained tied. Banks cannot risk federal prosecution for money laundering or even possibly a RICO (Racketeer, Influence, and Corrupt Organizations Act) charge for helping a cannabis related business deposit money into a bank. The federal government could come in at anytime to freeze and or seize the bank’s assets due to the illegality of marijuana which most banks are not willing to risk.
The broader measure would have prevented the U.S. Department of Treasury from taking any action to “penalize a financial institution solely because the institution provides financial services to an entity that is a manufacturer, producer, or a person that participates in any business or organized activity that involves handling marijuana or marijuana products” in accordance with state or local law.
After a lengthy and impassioned debate during which at least 19 lawmakers spoke, it was defeated on a voice vote by the House Appropriations Committee.
Despite the fact that a growing number of states are legalizing marijuana for recreational or medical use, many financial institutions have remained reluctant to work with cannabis businesses for fear of running afoul of money laundering laws under ongoing federal prohibition.
The risk for the banking institutions is clear, frozen assets or seized assets both equal lost money. There is no insurance policy that can protect a bank if they are charged with federal crimes. The banks are protecting themselves by not working with cannabis business owners or cannabis related businesses. So how do cannabis related businesses protect themselves and from what exactly? While piles of cash seems like a good thing, the reality is that this creates a major liability and risk factor for business owners. As the money grows, storage becomes a problem. Where do you put large stacks of highly valuable and flammable currency? How do you transport it? And, how do you protect your business from would be thieves who know you have large amounts of cash on hand?
There are steps you can take logistically, such as large safes, special storage facilities, armored vehicle transport, and accounting teams designated for counting cash and keeping track of where the money physically is located. All this is very costly, but even with all this your business could easily become a target for a robbery. Your business could be targeted during business hours, after hours, or while the cash is in transport. As a cannabis business owner you should protect yourself, your team, and your business by working with the cannabis insurance specialists at S2S Insurance to properly assess your risk and develop a risk management profile. From Eric Rahn of S2S Insurance, “your cannabis business can’t afford to not have cannabis insurance.”