So far, at least in the United States, there is one aspect of reform which has remained stubbornly left behind in the world of prohibition – and that is where cannabis crosses into all things banking. The hangover from the Drug War includes stiff penalties and creates a still difficult to navigate space when it comes to all things financial transaction related in the world of weed.
Money laundering and transacting in “illegal” substances (read Schedule I drugs) is still a highly prosecutable crime on the federal level. And because of the federal rules and regulations that have so far not been formally addressed by the Department of Justice, most banks are still highly leery of any business or business customers that directly deals in the plant.
That does not mean that marijuana businesses do not have bank accounts (about 40% of them actually do via creative workarounds). What it does mean is that banking remains a highly expensive proposition for the industry – and those costs are passed on to the consumer – including in the form of higher prices for product and operations.
What This Means To You
Even if you live in a state where medical use is legal (let alone recreational), you may have noticed that dispensaries still mostly require cash sales. It also means that pre-payment for delivered services is still a headache.
There are beginning to be credit unions in certain states, particularly those with a history of working with businesses on the edge of legitimacy (including gambling and alcohol) who are willing to serve the industry. Even today, however, they do not advertise such services widely. Individual marijuana firms have to approach such institutions separately. Those who do manage to set up legitimate banking operations can of course pass these services to their customers – particularly in terms of offering something other than cash and carry at stores – but this is still very much a developing space.
That said, do not look for significant, industry-wide change until the federal government reschedules weed – and right now the timetable on that is anyone’s guess.
What Is Likely To Change The Environment
Marijuana consumers outside of the United States do not have this issue. In Canada, America’s closest pro-pot neighbour, recreational use is likely to be legal this year. Mainstream pharmacy chains that sell other drugs are already eyeing getting into the distribution game. Distributors already allow credit card transactions.
In Europe (specifically Holland) American tourists are often surprised that marijuana purchases at both coffee shops and dispensaries can already be made with the “Maestro” or Euro bank debit card network. This is also going to change (and dramatically) in Germany as of this year, which will be rescheduling marijuana to a Schedule III drug as of this spring.
America, in other words, for all the hype about the size of the industry, is literally in the midst of growing a multi-billion dollar business on the back of cash-only transactions.
It is very likely however, that California’s legalization push will begin to change the equation, just because of the size (and worth) of the industry on a state basis.
Look for innovations such as marijuana purchase cards as well as state credit unions in America’s largest state to begin to push the envelope in a way that other states could not do. Colorado and Washington State have repeatedly tried to establish state credit union support for the industry and have been met with resistance at the federal level for the last three years.
Further, with the likely appointment of Jeff Sessions to the position of federal Attorney General, the entire industry is well aware that it must tread carefully on the banking front, and banks themselves are likely to be even more cautious.
This means, therefore, in the short term, that consumers will still have to rely on cash and carry – and that marijuana-based businesses will have to jump through hoops that no other legal business currently faces.
Can Bitcoin Come To The Rescue?
In the face of continued federal intransigence to creating a workable if not modern solution for marijuana banking, some in the industry are looking for other options. This includes the use of bitcoin as a legitimate form of “financial currency” for the legitimate industry – particularly for smaller producers and sellers.
How this would work, or even if it would be allowed to work by the federal government in the United States is still unclear – particularly given the history of such enterprises as Silk Road.
For the time being, in other words, therefore, the marijuana industry, despite being a billion dollar enterprise, is still transacting in good old fashioned paper currency.