Why Legal Cannabis Businesses Can’t Use Banks

Why Legal Cannabis Businesses Can’t Use Banks

Despite the recent influx of states legalizing medical and/or recreational cannabis, it is still illegal at the federal level. It is classified by the U.S. Drug Enforcement Administration (DEA) as a schedule one controlled substance. The DEA does not recognize any exception for medical use, placing marijuana on par with the likes of heroin. Banks are federally chartered and therefore, banks that handle cannabis businesses could be charged with money laundering.

Dealing in Cash

The vast majority of cannabis industry businesses such as growers, dispensaries and processors have been operating in cash. This means accepting cash only transactions, paying employees in cash and handing over taxes in cash. There are often ATMs found inside or nearby dispensaries.

Record Keeping

There are several issues that make cash-only businesses difficult. One of those is record keeping. It is more difficult to count and keep track of cash, especially when it is being handled in large quantities. Human errors are going to happen.

Paying Taxes

The regulations for paying taxes differ by state. Cannabis businesses in Oregon have a one specific location they have to physically drive their cash to, in order to pay taxes. Other states have multiple locations, but the vast majority is hauling their payments in duffle bags. This is not easy for the business owner, nor the tax collectors. Overall, it is an accounting nightmare.


Anytime there are large quantities of cash in one location, you are asking for trouble. There are countless stories about employees and owners being robbed (sometimes violently) by people targeting the cash. When 10’s of thousands of dollars are being hauled around by a regular person in a Chevy Corola (for example) you can see how the target could be fairly easy. Some businesses in higher risk areas have stationed guards around the business. Unfortunately, many armored car companies are also fearful of federal repercussions.

Asset Forfeiture Laws

Though it has not been a big problem everywhere, asset forfeiture laws allow police to seize cash if it is merely suspected of including proceedings from a crime. This has been a serious problem in the Detroit, Michigan area, which has resulted in a reduction of the numbers of dispensaries in the area. The laws allow cash to be easily seized; it is very difficult to get back and often gets used by the department.

Is There a Solution to the Cannabis Banking Problem?

Since the very first legalization of medical marijuana, the industry has been searching for an answer to the cannabis banking dilemma. With more states legalizing cannabis, there is an increased sense of urgency. California, which legalized recreational marijuana on January 1, 2018 is estimated to generate $7 billion in its first year. As of now, all of that will be in cash. There are several options being explored.

State-Owned Banks

California has begun researching the possibility of developing a state-owned banking system that would avoid all of the federal oversight. North Dakota is currently the only state that has a state-owned bank. In 2010 Massachusetts conducted a similar study, but opted to scratch the idea due to cost.


For those unfamiliar with the concept of cryptocurrency, it is a digital currency in which encryption techniques are used to regulate units of currency and transfer of funds. This is done without the oversight of a centralized chartered bank. Bitcoin is the most popular type of cryptocurrency, but there are a number of other specific to the cannabis industry including:

  • PotCoin
  • HempCoin
  • CannabisCoin
  • DopeCoin
  • CannaCoin

One of the biggest hang-ups is that only a very small percentage of people utilize the technology. There is also a stigma around the concept of operating outside the government that some industry professionals are trying to avoid.

Digital Wallet

There are now plethoras of digital wallet apps that allow transactions to take place online or on your smartphone. PayPal is arguably the most popular, but the one making the most waves in the cannabis industry is CanPay. The system operates using banks and credit unions willing to bank with cannabis related businesses. Hawaii is home to four medical marijuana dispensaries, three of which operate using CanPay. Unlike the industry on the mainland, Hawaii has opted to push for a cashless industry.

The Big Wrench in the Plan

During the Obama administration, U.S. Attorney General James Cole produced what is now called the “Cole Memo.” This essentially transferred marijuana industry regulations to the individual states. It also directed federal law enforcement to allow businesses to operate so long as they were compliant with the requirements set forth in the memo.

The Trump administration has taken a different approach. Just days after California legalized recreational cannabis, current U.S. Attorney General Jeff Sessions rescinded the Cole Memo. This means that the feds to have the ability to crack down on marijuana related institutions. There are currently close to 400 banks and credit unions doing business with cannabis accounts.

It seems that just as the industry was making progress, there may be a backslide under the Trump administration. Despite hang up in cannabis banking, the industry is continuing to grow, just waiting for the federal government to get on board.

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Industrial grade hemp grows on the Stanley Brother's farm near Wray, Colorado, Monday, September 22, 2014. The Stanley Brothers have developed a popular strain of marijuana that has been found to be helpful in reducing seizures. The marijuana high in CBDs and low in THC, the chemical which gets a person stoned.

Photo by Matt Nager

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