California Forum

Awash in cash, state’s marijuana businesses can’t take it to the bank

Special to the Sacramento Bee

Kimberly’s biggest problem is one most would envy: too much cash.

She keeps it in a battered patent leather satchel she calls her “bank,” separated in manila envelopes, each stapled three times across the top.

Recently, this kitty totaled about $96,000 for the week – which is why she doesn’t want her last named used. She’s scared, with “fears coming from every direction,” she says.

Kimberly runs a nonprofit medical marijuana dispensary, and like the rest of the industry, she can’t use a bank. Her business is legal by state standards, but it’s still a criminal enterprise to the federal government.

Banks won’t do business with her. Nor will security companies, armored-car companies, insurance brokers, credit card vendors or any of the usual providers of protection that the rest of society has. She even has trouble buying money orders.

So when Kimberly or other dispensaries want to, say, pay their state sales taxes, they have to do it in cash. Two of Kimberly’s envelopes – totaling more than $30,000 – were headed to the Board of Equalization on the day I met her, a trip she makes herself rather than put a co-worker at risk.

Banking is a long-running issue for the cannabis industry, and even states that have legalized recreational uses don’t have an answer. In 2014, the Department of the Treasury and other regulators issued guidelines that supposedly outlined how banks could legally provide accounts to marijuana-related businesses, but the upshot was to do it at the peril of being implicated in money laundering.

It was a “loosey-goosey response” that said there are no plans for now to prosecute bankers, but no promises for the future, says Wharton professor Peter Conti-Brown, who tracks the issue. Banks that do open accounts for marijuana-related businesses are required to follow onerous guidelines and make “suspicious activity reports” about their clients, potentially inviting investigation.

So the vast majority of banks don’t. It’s “a risk they can’t take,” says George Runner, the vice chair of the California Board of Equalization, which collects sales and use taxes for the state.

Colorado thought it had figured out a financial solution with a startup called the Fourth Corner Credit Union. That nascent institution was being watched as a potential model for other places after being granted a state charter last year.

But the Federal Reserve Bank refused to give it a master account – which Fourth Corner needed to do any kind of interstate banking including electronic transfers, effectively shutting it down before it opened. Fourth Corner sued, but a federal judge last month ruled against it, saying courts can’t “issue an order that would facilitate criminal activity.”

But that decision also referenced the obvious elephant in the vault, that the banking situation for the marijuana industry is “untenable.” The sophistic position of the federal government is creating an absurd and dangerous situation that puts people at real risk.

Cash is a magnet for crime – one of the recent escaped convicts from Southern California was awaiting trial for kidnapping and torturing a dispensary owner whom he believed had buried large amounts of money in the desert.

That’s just one example, but it’s the kind of horrific scenario that’s an actual threat to Kimberly, and her son. Along with the physical danger, those in her industry are “being discriminated against, segregated and stereotyped” by being denied access to the financial system, she says. She can’t get a home loan, and she worries child protective services will see her situation as problematic. Even health care can be hard to come by.

There’s not a lot anyone can do to help short of persuading the feds to change their minds, which seems unlikely. President Barack Obama recently reiterated his stand that any fixes on marijuana policy need to come through the Republican-controlled Congress, which has shown little inclination to take up the issue. And while his administration has backed off – but not ended – prosecutions of marijuana businesses in California, who knows what the next administration will do?

“This one is really just out of our hands,” Runner says. “I’m not optimistic the feds are going to change.”

It’s stunning that with a state industry valued at $2.7 billion in 2015, the largest medical market in the country, there are no solutions available. Runner and his colleagues instead are stuck settling for workarounds to make the process safer for his agency and taxpayers like Kimberly.

The Board of Equalization recently contracted with the CHP for officers in their facilities, and it’s examining payment options such as Bitcoin and self-serve kiosks, or even asking banks to serve as delivery points where the BOE could take possession of money in a secure setting. So far, none are viable.

Runner says the problem is getting worse with the medical marijuana regulations passed last year. Those laws are having the hoped-for effect of persuading many growers and sellers to legitimize. That’s great, but it’s more cash trying to find its way into the financial system with few legal entry points.

And recreational use is on the 2016 ballot, with the potential to bring up to $1 billion in state sales tax annually, all money that will have to be carried into BOE offices.

California can’t afford to have an industry generating billions of paper dollars. As potentially the largest state with legal recreational use of marijuana, that kind of cash economy will cause trouble. With no digital trail, some won’t report money. Others will use force to get it. And those trying to legally take part in the business will remain outliers.

It’s troubling that the federal government is not just putting people like Kimberly in danger, but creating an unsafe situation for everyone who comes into contact with this burgeoning industry many states recognize as legitimate.

A few years ago, the feds may have had a point that Kimberly and her colleagues were criminals. Now, California and 22 other states say she’s not. But no matter how hard she tries to run her business with integrity and honesty, to the federal authorities, she remains just another drug dealer who deserves to be afraid.

Anita Chabria is a freelance writer in Sacramento. Contact her at

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