Marijuana is now legal medically in 25 states and recreationally in four states and Washington, DC. And yet, the budding industry is forced to operate mostly in cash due to stigma and the fact that the drug is still illegal at the federal level.
It's inconvenient, and most marijuana businesses would prefer to open an above-board bank account like any other corporate customer. While some small banks have opted to work with marijuana companies, most US banks are unwilling to take what they view as potentially problematic money. Just last week, a measure that would have opened up banking options for marijuana companies failed in the House of Representatives.
This situation has led to some innovative hacks and practices around handling money.
"The creativity of cannabis businesses' cash management is unparalleled," said Lamine Zarrad, CEO of the cannabis payments startup Tokken and a former employee of the Office of the Comptroller of the Currency, a department of the Treasury that regulates the national banking system.
Cannabis businesses establish shell holding companies comprised of multiple subsidiaries with obfuscatory names, Zarrad told Motherboard. They split cash into small sums and hire people to deposit cash into various ATMs in a number of towns, as well as use bitcoin, invest in commodities and art, and rely on personal accounts to manage all the physical cash.
The schemes get wackier. Tyler Henson, President of the Colorado Cannabis Chamber of Commerce, a non profit chamber of commerce focused on cannabis business policies, told Motherboard he'd heard of schemes involving buying the debt on financed vacuums, and even flying in private jets weekly to deposit cash in Bahamas-based trust funds.
"I thought it was a huge problem to have this cash out there."
Former regulators have entered the cannabis industry hoping to solve its various regulatory and cash problems.
Amanda Ostrowitz, a former assistant bank examiner at the Federal Reserve Bank of Kansas City, cofounded the cannabis law and regulatory database CannaRegs after realizing how difficult it was to simply track down all the laws related to the industry.
Her colleagues at the agency talked about cannabis businesses as a joke rather than a legitimate regulatory challenge, she said.
"I didn't agree. I thought it was a huge problem to have this cash out there," she said. "The inherent danger was much more than with it on the wire."
The agency is too conservative to move quickly on marijuana banking, she said. "Everything is a drawn-out process. I fear there won't be any action until marijuana is re-scheduled or de-scheduled."
The problem has also attracted financial technology entrepreneurs like Zarrad, whose company Tokken seeks to offer cannabis businesses the safety of traditional banking combined with cutting edge technologies like the blockchain.
Kind Financial, based in Los Angeles, is a seed to sale software and financial technology startup. Hypur, based in Scottsdale, Arizona, looks to bridge the gap between traditional financial and cannabis with its end to end and payment technology.
Eventually, Zarrad hopes traditional banks will realize that marijuana isn't such a risky business after all. The industry in Colorado alone is estimated to be worth $1 billion. With numbers like that, banks can't ignore the industry forever.
"Banks charge exorbitant interest rates to certain segments of the population because they think they are high risk, but a lot of the methodology they use to validate is extremely archaic," Zarrad said. "We want to restructure the way financial institutions look at risk. That's how to bridge the gap between banking and cannabis."