The US cannabis Business’s one big problem: Too much cash – Al Jazeera English


The US cannabis business has a very special cash flow problem — too much of it.

Marijuana can be sold lawfully in 36 US states and the District of Columbia (DC) for clinical use and at 15 of them and at DC for recreational functions. Nonetheless, it’s still illegal on a national level, meaning most banks refuse to support the industry in the event they fall afoul of money laundering laws.

With the COVID-19 outbreak and raising legalisation driving a surge in cannabis usage, the industry’s manufacturers, manufacturers and retailers are awash in cash, adding costs and risk to the absolute most elementary business transactions from paying workers and submitting taxes to finding somewhere to store their earnings.

“All of this cash flowing around is just a recipe for disaster,” explained Smoke Wallin, chief executive of hemp health products manufacturer Vertical Wellness Inc.”How do you account for it? Where would you keep it? How can you move it? Even in a safe, it is a security risk for workers.”

Ryan Hale, a US Navy veteran and co-founder of cash management firm Operational Security Solutions, had to convince a cannabis farmer in California to stop concealing cash in a tree. On a second occasion, Hale had to help a bewildered retailer who had lost count of the dollar bills overflowing from his store’s lockers.

Legal US cannabis earnings grew 30% to $22bn last calendar year, more than the $17.5bn Americans spent wine, according to information from Euromonitor. Earnings are expected to jump more than 20 per cent this season.

Too much cash

With just a couple of banks operating weed producers, some end up stashing cash in safes [File: Reuters/Handout]

The earnings boom could have abandoned cannabis businesses with a cash pile of more than $10bn to bargain with previous year, according to research firms and New Frontier Research.

Big players may afford unmarked armoured vans and armed forces to transport cash, but more compact operators need to rely upon themselves.

As the legalisation of cannabis accumulates steam across countries — New York and New Mexico allows marijuana for recreational purposes in the next few years — politicians are taking a look at methods to make it simpler for the sector to access banking services.

The House of Representatives passed a bill in April that would enable cannabis firms to get bank accounts, get loans and accept credit card payments but it may not make it to the Senate since Senate Majority Leader Chuck Schumer would like to work rather towards raising the federal ban on cannabis.

A whole national green lighting is the industry’s ultimate aim but it is not counting on Schumer’s assurance to make it happen by following year.

Stocks of US cannabis businesses, listed in Canada since they are prohibited from US exchanges, are up just 9 percent so far this year according to this AdvisorShare Pure US Cannabis ETF and away almost 29 percent by a February summit.

Banking services in a top

Meanwhile, bud companies must search for friendly banks.

The ceremony comes at a high since the national illegality increases the quantity of paperwork required by banks.

As demand grows, investors pour money into cannabis technology startups [File: Shannon Stapleton/Reuters]

Chris Driessen, leader of producer SLANG Worldwide Inc, stated it cost his firm 40,000 to avail banks solutions in Colorado, one of 12 countries where the business operates. Ordinarily, a business checking account would charge less than $100 to open.

“Standard banking for businesses is usually 95-percent cheaper than the cost to bank cannabis businesses,” Driessen said.

Maps Credit Union is among those longest-serving financial institutions operating with the cannabis market. It has taken in more than 1.79bn in cash deposits from the industry in Oregon because January 2017 but that’s involved submitting thousands of accounts required under financial crimes watchdog FinCEN’s guidance for cannabis banking.

“Serving these companies is not cheap. It is a completely different ball game,” explained Rachel Pross, Maps’ operations chief, pointing to the usage of costly anti-money laundering software, external auditors and legal counsel.

As demand grows, investors have pumped more than $2.5bn into cannabis technology startups because 2018 and specific purpose acquisition companies or SPACs that aim the wider cannabis industry, have increased $3.9bn thus far, according to Viridian.

Within the business, however, some cannabis executives are not able to acquire loans and fight even to keep personal accounts.

Cookies owner Berner stated several banks had decreased to be associated with him because he got into the cannabis lineup in 2015.

“My clothes business failed $32m last year, but multiple banks have requested us to leave,” he explained. “You’d love to go into a usual banking establishment and simply be treated like a normal human being.”


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