Next year, billions of dollars are expected to flood the California’s marijuana industry when recreational cannabis is made legal. Even so, these businesses will struggle to secure the services they need with their local banks. But why would such a profitable industry with so much potential experience issues securing solutions with a traditional lender?
During the Obama administration, guidelines were issued by the Justice Department that were intended to help banks avoid federal prosecution when providing services to legal marijuana businesses. However, banks remain unwilling to work with these merchants for fear it will expose them to legal trouble from the federal government. According to The Los Angeles Times, an estimated 70 percent of cannabis businesses have no bank accounts.
As of now, marijuana is still illegal on the federal level; the Drug Enforcement Administration classifies it as a controlled substance with no accepted medical use – listed alongside heroin. Thus, federal government heavily regulates the banking industry. The Justice Department is concerned that profits in legal marijuana states could easily be funneled to gangs are cartel. The rules are supposed to act as a shield for banks, protecting against charges like aiding drug trafficking.
From the banks perspective, it can be difficult to be fully confident in determining a marijuana business’ true intentions. Most banks find it a heavy burden to decide whether the business is operating within the law, and therefore shy away from working with these merchants. The risks are simply too high for financial institutions.
There are a few banks and credit unions who are still willing to handle marijuana business’ money, but very few. In 2015, Colorado tried to set up a credit union specifically for the marijuana industry, but was blocked by the Federal Reserve. In another attempt, the Oregon Department of Revenue created a secure office for these businesses to drop off and count cash.
Overall, this situation has created a very unstable, unsafe atmosphere for legal marijuana businesses to operate in. How many industries involve business people walking around with millions of dollars of cash? To get around this problem, some merchants open bank accounts by setting up a nonprofit organization or management companies with an ambiguous, in hopes of misleading banks.
There are much safer and straightforward options available. An increasingly popular solution to this ever-growing problem is a marijuana merchant account. Alternative providers – like marijuana merchant account, also known as MMA – specialize in providing the payment processing solutions and business funding this industry needs. Depending on the business type, merchants can secure either a recreational or medical marijuana merchant account in as little as 24 hours.
While many are optimistic about the marijuana industries future, for now, the safest options for merchants remain either in cash (still extremely unsafe and impractical) or an alternative solution; such as a marijuana merchant account from a high-risk provider.