Focus: U.S. pot sellers stash cash as banks leave them high and dry

Slang Worldwide

24/05/2021 07:00

By Shariq Khan
    May 24 (Reuters) - The U.S. cannabis business has a very
particular cashflow problem -- too much of it.
    Marijuana can be sold legally in 36 U.S. states and the
District of Columbia (D.C.) for medical use and in 15 of them
and in D.C. for recreational purposes. But it's still illegal on
a federal level, meaning most banks won't service the industry
in case they fall afoul of money laundering laws.
    With the COVID-19 pandemic and increasing legalisation
driving a surge in cannabis use, the sector's producers,
manufacturers and retailers are awash in cash, adding risk and
costs to the most basic business transactions from paying
employees and filing taxes to finding somewhere to store their
income.
    "All this cash flowing around is just a recipe for
disaster," said Smoke Wallin, chief executive of hemp health
products maker Vertical Wellness Inc. "How do you account for
it? Where do you keep it? How do you move it? Even in a safe,
it's a security risk for employees."
    Ryan Hale, a U.S. Navy veteran and co-founder of cash
management firm Operational Security Solutions, had to persuade
a weed farmer in California to stop hiding cash in a tree. On
another occasion, Hale had to help a bewildered cannabis
retailer who had lost count of the dollar bills overflowing from
his store's lockers.
    Legal U.S. cannabis sales grew 30% to $22 billion last year,
more than the $17.5 billion Americans spent on wine, according
to data from Euromonitor. Sales are expected to jump more than
20% this year.
    The sales boom could have left cannabis companies with a
cash pile of more than $10 billion to deal with last year,
according to research firms Headset.io and New Frontier
Research.    
    Big players can afford unmarked armoured vans and heavily
armed guards to transport money but smaller operators have to
rely on themselves.
    One weed producer in Los Angeles, who declined to be
identified, said he had to carry $120,000 in a bag and drive for
six hours from Los Angeles to Oakland to pay a supplier instead
of taking a flight and put himself at greater risk of being
robbed or the money being confiscated by airport security.
    During the last weekend of May 2020, when protests erupted
across the United States against police brutality and racism
after the murder of George Floyd, there were at least 43 attacks
on weed dispensaries along the West Coast, according to Cannabis
media site Leafly's review of police reports and business
owners' statements.
    One of the stores attacked was Cookies Melrose in Hollywood,
owned by rapper Gilbert Milam Jr, known by his stage name
'Berner'.
    It suffered damages in the "high six figures" when around a
hundred people attacked the store on May 29, a company
spokesperson said.
    
    A DIFFERENT BALL GAME
    As legalisation of cannabis gathers steam across states --
New York and New Mexico will allow marijuana for recreational
purposes in the next few years -- politicians are looking at
ways to make it easier for the sector to access banking
services.
    The House of Representatives passed a bill in April that
would allow cannabis firms to have bank accounts, get loans and
accept credit card payments but it may not make it to the Senate
because Senate Majority Leader Chuck Schumer wants to work
instead towards lifting the federal ban on cannabis.
    A full federal green light is the industry's ultimate goal
but it isn't counting on Schumer's pledge to make it happen by
next year.
    Shares of U.S. cannabis companies, listed in Canada because
they are barred from U.S. exchanges, are up just 9% so far this
year according to the AdvisorShare Pure U.S. Cannabis ETF
 MSOS.N  and off nearly 29% from a February peak.
    In the meantime, marijuana businesses have to hunt for
friendly banks.
    Only 515 of the more than 8,200 federally registered banks
and one in 30 credit unions in the United States worked with
marijuana businesses at the end of 2020, according to data
compiled by government agencies.
    The service comes at a premium as the federal illegality
increases the amount of paperwork needed by banks. 
    Chris Driessen, chief executive of pot producer SLANG
Worldwide Inc  SLNG.CD , said it cost his firm $40,000 to avail
of banking services in Colorado, just one of 12 states in which
the company operates. Normally, a business checking account will
cost less than $100 to open.
    "Standard banking for companies is often 95% cheaper than
the cost to bank cannabis companies," Driessen said.
    Maps Credit Union is one of the longest-serving financial
institutions working with the cannabis industry. It has taken in
more than $1.79 billion in cash deposits from the sector in
Oregon since January 2017 but that has entailed filing tens of
thousands of reports required under financial crimes watchdog
FinCEN's guidance for cannabis banking.
    "Serving these businesses is not cheap. It's a completely
different ball game," said Rachel Pross, Maps' operations chief,
pointing to its use of costly anti-money laundering software,
external auditors and legal counsel.
    As demand for pot grows, investors have poured more than
$2.5 billion into cannabis tech startups since 2018 and special
purpose acquisition companies or SPACs that target the broader
cannabis industry, have raised $3.9 billion to date, according
to Viridian. 
    Within the industry, however, some cannabis executives can't
get loans and struggle to even retain personal accounts.  
    Cookies store chain owner Berner said many banks had
declined to be associated with him since he got into the
cannabis line in 2015.
    "My clothing business did $32 million last year, but
multiple banks have asked us to leave," he said. "You'd like to
go into a normal banking establishment and just be treated like
a normal human being."

    <^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^
Marijuana Legalization by State Marijuana Legalization by State 
  https://tmsnrt.rs/3mDDGeM
Cannabis banking in the U.S    https://tmsnrt.rs/3v6vPdU
U.S. cannabis consumers growth    https://tmsnrt.rs/3wsZiPg
    ^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^^>
 (Reporting by Shariq Khan in Bengaluru; Editing by Arun Koyyur
and Carmel Crimmins)
 ((Shariq.Khan@thomsonreuters.com; Within U.S.+1 646 223 8780,
outside U.S. +91 80 6182 2681; Twitter: @shariqrtrs;))