Medical marijuana businesses run on cash as banks shy away
Credit cards and checks are expected to be of little use when it comes to financial transactions associated with Oklahoma's new medical marijuana industry.
Cash will be king.
Medical or not, marijuana transactions remain illegal under federal law. That means banks can't participate in marijuana-related business transactions without risking federal criminal and civil penalties that could send bankers to prison and cripple a bank's ability to do business, said Oklahoma Banking Commissioner Mick Thompson.
"Total uncertainty," is the way Thompson described bankers' expectations as to how money laundering and other federal banking laws will be enforced regarding Oklahoma's new state-sanctioned medical marijuana industry.
Faced with that uncertainty, Thompson said he expects most banks will steer clear of deposits and loans connected to medical marijuana.
"The bank has to make a business decision," Thompson said. "Not very many banks — even in Colorado — are taking the chance."
"Because it's not clear and there's so much uncertainty, most banks in most states — even those that had it authorized for several years — are not banking it," Thompson said.
The ramifications are many. Patients likely will have to pay cash at dispensaries to purchase their medical marijuana. Dispensary employees likely will be paid with cash. Transactions between growers, processors and dispensaries also are likely to be done with cash.
"How far does it go down?" Thompson asked, questioning whether it was even permissible for a financial institution to provide banking services to a person who rents a building to a marijuana grower.
The whole cash economy surrounding the state-sanctioned marijuana industry is a problem for law enforcement because it means a lot of cash is being moved around, Thompson said.
Robberies become a significant risk.
"We need Congress to act and clarify so there's not this difference between state law and federal law," Thompson said.
The medical marijuana industry's reliance on cash has not gone unnoticed by Oklahoma Tax Commission officials, who anticipate marijuana businesses will be paying their taxes with cash, as well.
Tax Commission officials have been discussing the need for armored truck contracts, drop boxes, additional security and things like that, said Paula Ross, a spokeswoman for the commission.
Bud Scott, executive director of New Health Solutions Oklahoma, a trade organization representing the state's medical marijuana industry, said forcing the industry to deal in cash is bad for everyone.
"Without having access to our traditional financing institutions, it only encourages noncompliance with reporting, with taxes," Scott said. "If everything has to be in cash, then where is our paper trail. And where is our motivation or incentives to report things appropriately."
"The negative byproduct of continuing to treat this industry like a bunch of criminals is ... you're encouraging behavior like criminals," he said.
Efforts have been made in the past to bring banking services to marijuana businesses in states that have voted for legalization and such efforts continue today.
During the Obama administration, federal prosecutors essentially took a hands-off approach to prosecuting individuals and businesses in states where marijuana use had been sanctioned, as long as state laws were being complied with and enforced.
Relying on a memo from a deputy attorney general, the U.S. Treasury Department's Financial Crimes Enforcement Network established complex guidelines that financial institutions could follow if they wanted to open accounts for marijuana-related businesses.
With those guidelines in place, a number of banks began providing services to marijuana related businesses.
However, after Donald Trump was elected president, Jeff Sessions became attorney general and he rescinded the deputy attorney general's guidance memo, generating new confusion about how marijuana laws would be enforced.
Scott said some states have authorized the creation of special credit unions to provide banking services to marijuana businesses, and that may be something Oklahoma can pursue once the Oklahoma Legislature is back in session.
In addition, there is federal legislation pending that would amend the Controlled Substances Act to give each state the right to determine for itself the best approach to regulating marijuana within its borders.
U.S. Sens. Elizabeth Warren, D-Massachusetts, and Cory Gardner, R-Colorado, are among several bipartisan co-sponsors of the bill.
"We'd all rather be playing by the same set of rules as everyone else," Scott said.