When it arrives in New York, the medical marijuana industry will be a nearly all-cash business.
New York’s five companies licensed to grow and sell medical marijuana under the Compassionate Care Act must grapple with the security, safety, and legal challenges of dealing in cash because they can’t keep it in banks in the same way other businesses do.
Federally regulated banks are often unwilling to work with clients whose money comes from the business of medical marijuana, the legality of which varies state to state. This is in spite of a 2014 statement by the Justice and Treasury Departments that would allow banks to serve state-licensed marijuana businesses. Licensees, dispensary employees, patients, and other affiliated vendors are therefore barred from using credit or debit cards, or holding bank accounts that contain money made from cannabis. In other states with medical marijuana, the payroll and all business transactions often go down in cash. Thousands and thousands of pounds of cash, sometimes in duffel bags.
“Very simply, it’s a nightmare,” says Mark Goldfogel, executive vice president of the Fourth Corner Credit Union, a state-charted credit union based in Denver that was created for the state’s booming cannabis industry. In late July, the National Credit Union Administration’s Office of Consumer Protection denied Fourth Corner federal insurance, and now Fourth Corner is suing.
“There needs to be a change federally to give most financial institutions a level of comfort,” Fourth Corner CEO Dierdra O’Gordon tells the Voice. For example, Goldfogel says people may be forced to lie about the business they’re in or create fake business names and shell companies, so that they can pay some bill that can only be paid electronically.
Moreover, dealing all in cash poses a huge safety concern, says William Bates, founder of Canna Investment Protection Services, or CIPS LLC. From his experience in Washington state, Bates says it’s not uncommon for licensees to have up to $50,000 on them at any given time. People hide the cash in all sorts of places, such as beneath the floorboards or in unassuming cardboard boxes, and then must eventually transport it from the dispensary to an alternate location. Sometimes dispensary owners are forced to take a different route home from work every day. “I think that’s going to be the biggest challenge for folks in New York,” says Bates, “there’s a lot of people in New York, it’s more difficult to hide it there.”
In a state like New York, with only 20 dispensaries total, each dispensary may accumulate a lot of cash in a short amount of time. “If you don’t have something in place to manage that from a retail standpoint to banking and compliance, then you’re destined to fail,” says Howard Goldberg, sales director of Jane, a tech company that helps marijuana retailers stay financially transparent and compliant.
“At the end of the day, the books don’t always add up,” says Goldberg, “You’re held accountable on a compliance level. If you want to retain your license, you must be able to prove that all your revenue matches all your transactions.” Cash makes it more difficult to provide a solid audit trail.
Technological innovations, however, have helped alleviate some of the challenges that cash presents. The accounting based software Gateway LTP helps licensees transport their product from manufacture facilities to dispensaries. The software works like UPS or FedEx, says Bates, helping to track cannabis inventory levels and ensuring that the seed to sale system is up to date.
Once a dispensary is stocked with cannabis, an invention like Jane helps remove all cash handling from inside the dispensary and monitors transactions. After consulting with a budtender, the patient completes the financial transaction through Jane, a self-service kiosk. The patient then brings a pay voucher back to the budtender to receive the cannabis medicine.
When switching the cash out of Jane, a cash transport company delivers the money either to one of the few banks willing to accept business — though none in New York publicly do this so far — or to a vault. “No one in the dispensary has to touch [the cash],” says Goldberg, “There’s always this constant cash custody, no chance of any leakage.”
One step further than a kiosk would be a “marijuana debit card,” says Bates. “A cannabis debit card that people can use to pay for products, services, whatever, that is used within the industry. That will alleviate all the issues that come with dealing with all cash.” The company PayQwick is currently working toward this idea. [Editor’s note: A correction ran concerning this paragraph; please see end of article.]
“My goal is really to legitimize the cannabis business nationwide and make it so that we have the same privileges as every other retail business, that we’re able to write off all our expenses, use banking freely, and use credit cards,” says Goldberg. “The only way we’re going to move in that direction is through strict compliance and operating like a responsible retailer. It’s almost like we have to earn it.”
Correction published 9/18/15: The original version of this article identified PayQuicker LLC, rather than PayQwick, as the company working toward a no-cash payment option. The above version reflects the corrected text.