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$5 Billion In California Cannabis Revenue But No Place To Deposit It

Here’s some good news and bad news for California cannabis entrepreneurs. First the good news: Financial analysts estimate the state will generate $5.2 billion in cannabis-related revenue in 2018, the first year of legal recreational marijuana sales. Now the bad news: There still is no place to deposit all these billions of dollars.

Forbes reporter Julie Weed reports:

Banking is severely limited for cannabis industry businesses. As a “Schedule I” substance, cannabis is categorized to be as harmful as heroin and banks risk losing their federal charter if they work with cannabis companies. Financial institutions need to go on record with the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCen) when they establish a relationship with a known Marijuana Related Business, and Karnes estimates that just 5% of all banks have done that. He believes that fewer than 1% of all banks in the United States are currently working with cannabis-related companies.

The lack or institutional banking exposes these businesses to the risk of operating as a cash-only enterprise. Because of the onerous and outdated laws, cannabis businesses are required to fork over extra money for safes, security guards, extensive video camera systems and other safety measures. Many companies, fearing criminal behavior, are purchasing firearms.

Forbes reports that some cannbusinesses are turning to cryptocurrencies, which have their own sets of problems.  Cryptocurrencies have a “questionable ability to pass regulatory scrutiny,” because they are so complex, according to Matt Karnes, industry analyst and managing partner of New York’s GreenWave Advisors.

Greenwave Advisors recommends that the federal government step in and resolve the issue:

Investors continue to be concerned that their interests may not only remain vulnerable to existing legal impediments, but also that they could face an additional threat if the federal government were to claim superseding law enforcement jurisdiction over state mandates.

We believe that until such time as the federal government ends prohibition or passes legislation to change existing laws that the cannabis industry will be impelled to seek out temporary solutions to facilitate banking transactions. It is hoped that some of these work-arounds will be suited for longer term viability and will (or continue to) stand the tests of regulatory scrutiny.

Accordingly, there will remain some level of ambiguity as to whether a true cannabis banking solution exists in the marketplace today. There is no one answer and we think there will continue to be a patchwork of alternative offerings.

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