Regular cannabis users are well aware of the fact that their dispensaries or medical cannabis pharmacies still deal primarily in cash payments. Guess what? They are not the only ones. Growers and processors continue operating mainly on cash as well. The reason is simple: banks don’t want to do business with cannabis companies because they don’t want to risk running afoul of federal law.
Operating a cash-only business is inconvenient at best. It can be downright dangerous as well. The cannabis industry is especially vulnerable due to sales volumes. Dealing only in cash puts business owners, their employees, and even their families at risk. It is not a good situation by any means.
Still Federally Illegal
The ongoing cash problem for cannabis businesses has its foundation in federal law. As you know, cannabis remains illegal at the federal level due to its continued classification as a Schedule I controlled substance. By the letter of the law, any bank agreeing to do business with a cannabis company is helping that company break the law. It doesn’t matter whether the company is a cultivator, processor, or retailer.
Federal regulations have had a chilling effect on banking in a number of sectors, not just cannabis. Firearms manufacturers and retailers are starting to run into trouble with their banks. So are companies that deal in cryptocurrency. The list goes on.
At any rate, not having access to banking services means everything has to be done with cash. Not only do cannabis businesses have to accept cash-only payments, but they also have to pay their own bills in cash. That is not so easy to do in a world so heavily reliant on digital transactions.
Paying Federal and State Taxes
Pure Utah is a medical cannabis pharmacy located in Payson, UT. They are a legitimate business with a Utah medical cannabis pharmacy license. Like any other business in the state, they have to pay their taxes. But how do they do that without access to banking services?
In all likelihood, the state accepts cash payments without issue. But the same cannot be said for the federal government. The IRS will only accept so much cash at a time. If a company’s tax bill exceeds the amount of cash the IRS will accept, not paying the remainder of the balance on time constitutes a default for which the company will face interest payments and penalties. Under such a system, cannabis companies could forever find themselves behind on their taxes.
Covering Business Expenses
What if Pure Utah wanted to expand its operation by increasing the size of its retail space. Having a contractor come in to perform tens of thousands of dollars in work would require the pharmacy to pay the bill in cash. Will the contractor even accept that much cash? Furthermore, where is the cash stored until the work is completed?
It is not uncommon for cannabis businesses to store cash at various safe locations around town. But that leads to yet another problem: the threat of robbery.
Cultivators, processors, and retailers alike constantly talk about the fear of being robbed. It is something they live with every day. Their risks are exacerbated by the fact that knowledgeable criminals are aware of the cash-only model typical of the cannabis industry.
Hopefully, Washington will change the rules so that banks can freely do business with cannabis companies. Until then, the industry will remain largely cash based. That may have been okay 50 years ago, but things have changed. Being a cash-only business in the modern era is bad news all the way around.