Although recreational or medical sales of cannabis are legal in more than 30 states, pot entrepreneurs are hamstrung by banking restrictions that force them to operate as cash-only businesses and leave them vulnerable to organized crime, reports Forbes.com.
“We can’t keep forcing legal cannabis businesses to operate entirely in cash – a nonsensical rule that is an open invitation to robbery and money laundering,” says Sen. Jeff Merkley (D-Ore).
Merkley was one of 28 co-sponsors of legislation that would prohibit penalties against institutions that provide banking services to legitimate cannabis-related businesses.
The Secure and Fair Enforcement (SAFE) Banking Act, received bipartisan support in the U.S. House of Representatives in March (after being introduced a second time), but is still lost in the congressional pipeline.
That has thrust the entrepreneurs of what according to some estimates is already a multi-billion-dollar industry into a legal gray area that evokes the vulnerable underground culture from which it emerged, writes Joan Oleck, author of the Forbes article.
Last month, an Oklahoma cannabis businessman was found guilty of money laundering in connection with a charge of misrepresenting his company as a “wellness and fitness” firm in order to be able to process his earnings through a bank account.
Victor Ngo faces up to 30 years in prison and a fine of up to $1 million.
Ngo’s case illustrates the predicament that marijuana entrepreneurs are placed in by federal banking restrictions, according to Mark Lozzi, CEO of Confia, a financial services platform in Irvine, CA.
Banks generally shy away from dealing with marijuana companies, partly because the state laws are inconsistent and also because cannabis remains a federally prohibited narcotic, he said.
Lozzi and others argue that banking rules need to be overhauled to create a framework of “proper governance” and oversight over marijuana revenues.
“As you’re encouraging more activity in the financial system to accept cannabis-related dollars, they need to make sure there’s proper governance and regulation over that activity for a long duration,” he told Forbes.
The stakes are high.
Marijuana was among the small number of industries reporting high revenue during the pandemic.
Much of the increase was powered by online ordering, reflecting the same surge in business experienced by major online marketers like Amazon, The Crime Report found in a survey of industry leaders in June.
But the checkerboard of pot laws across the country complicates financial accounting.
In Oklahoma, which the Denver Post recently characterized as “the hottest place in the country to grow marijuana, recreational sales are still illegal.
Even so, medical sales are on an upward surge. According to the Post, Oklahoma “has the most marijuana patients per capita in the nation.”
According to evidence presented in the Oklahoma court, Ngo was making daily cash deposits of up to $10,000. That amount also triggers a bank’s reporting obligations under the federal Financial Crimes Enforcement Network (FINCEN).
The growth of the cannabis industry, combined with its reliance on cash-only sales, makes it an attractive target for organized crime.
“[The government] can’t allow the financial system to get cavalier toward the industry,” said Lozzi, who is created a financial network to help cash heavy marijuana companies manage their businesses.
“It’s still too fresh from being a gray market or illicit drug, and actively operating in the black market. So regulation is going to be necessary more than ever as more banks participate.”