• All-cash business a headache for the marijuana industry

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    LOS ANGELES: America’s cannabis industry may be booming, but its entrepreneurs are finding the all-cash business a logistical, security and administrative headache as they try to manage all the money they’re making.

    Legalized for medical purposes in 29 states and recreational use in eight, the drug remains illegal under federal law.

    Most banks therefore refuse to have anything to do with the industry, forcing marijuana dispensaries across the country to operate only in cash, keeping bagfuls of dollars in their heavily guarded backrooms and employing discreet couriers.

    “It’s a very serious issue,” says Steve DeAngelo, a leading cannabis activist and founder of California’s Harborside Center, a medical marijuana dispensary company.

    The same is true for marijuana growers, says Justin Calvino, who grows cannabis in northern California’s so-called Emerald Triangle and complains that entrepreneurs like him also have no choice but to work almost exclusively in cash.

    “As farmers, we are all cash and it’s probably the most inconvenient thing,” he said.

    Innovative solutions

    Only 300 banking institutions—mainly regional banks and financial cooperatives—of nearly 12,000 in the United States agree to work discreetly with clients in the sector, according to the Standard and Poor’s ratings agency.

    And although small and medium-sized enterprises are increasingly managing to find banks or online institutions willing to do business with them, they run the risk of being shut down any time.

    Any significant cash deposit can draw the attention of the tax authorities, something Calvino found out over $3,000.

    “I’m on my sixth bank account in the last five years,” he said.

    Michael Katz, who heads Evoxe Laboratories—which makes cannabis vaporizers and aromatherapy oils mixed with cannabis—said he had $13,000 frozen for 19 days by Square, a digital payment system.

    But entrepreneurs say they’re finding innovative ways to survive the restrictions and deal with the large amounts of cash, some that seem straight from the TV series “Breaking Bad.”

    One marketing manager says she once received a message from Venmo, a popular payment system, asking that she no longer use its services.

    She turned to Paypal, hoping her company’s description of its cannabis-infused oils as “health products” won’t be scrutinized.

    Other cannabis operations have turned to the virtual currency Bitcoin while still others have developed intricate financial schemes.

    “People set up different entities, not directly related to the cannabis legal entities, as business management service companies,” Katz said.

    The Obama administration largely chose not to enforce federal laws on marijuana and in 2014 gave the banking sector the green light to do business with the industry in states where the drug is legalized.

    But it’s still unclear whether President Donald Trump—whose attorney general, Jeff Sessions, is an outspoken opponent of legalization—will maintain the status quo or crack down on the industry.

    Stringent security

    Given the uncertainty, many growers and entrepreneurs stick to cash as much as they can.

    “It is dangerous and you have to keep multiple options,” Katz said. “For many people, this cash is just hidden or kept in storage.”

    One cannabis grower in southern California who did not want to be identified says he keeps thousands of dollars in a safe under round-the-clock surveillance.

    The risks are obvious.

    One of Calvino’s employees made off with “$40,000 from underneath our bed and that really hurt,” he says.
    At Harborside, accessing any of the company’s buildings is like trying to get into Fort Knox.

    Photo identification and clearance by security guards is required for entrance.

     

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