In one infamous case from 2012, an Orange County dispensary owner was kidnapped, tortured and had his penis cut off by assailants who thought that the businessman was burying cash in the desert outside Palm Springs.
Burying cash might seem ridiculous in the 21st century, but it’s not unheard of in the cannabis industry.
“We get lots of cash, and sometimes it has been washed — actually washed — because it had been buried out in the backyard,” said John Bartholomew, treasurer-tax collector for marijuana-rich Humboldt County, speaking to Chiang’s group last year.
Cash payments are a hassle for governments too. Todd Bouey, L.A.’s assistant director of finance, told Chiang’s group that the city had to buy new currency-counting machines because office workers were spending so much time counting and recounting cash tax payments from marijuana businesses.
“No one comes in with the type of cash they come in with,” Bouey said. “ It was taking hours to get through one deposit.”
Still, Bouey said that only about 20% of marijuana businesses that pay taxes are doing so in cash. Most pay with checks, indicating that they have bank accounts — either openly or on the sly.
Even though they are few, and mostly small, there are banks and credit unions that are hungry for customers and willing to quietly open accounts for cannabis businesses.
The Los Angeles-area credit union serving Canndescent has been losing traditional members, and hopes that by serving young, growing companies in a booming industry, it will be able to offer checking accounts, home loans and auto loans to the companies’ employees.
“We’ll probably max out at about 200 businesses, and we’re basically at capacity,” said an executive, who provided details of the institution’s cannabis banking operations on the condition that neither his name nor the institution’s be used. “I don’t need to get inundated with phone calls.”
Finding a willing institution is just the first challenge. Next, companies have to qualify for an account — and be able to afford it.
At the credit union, cannabis companies have to pay an upfront fee of as much as $10,000 to cover the cost of independent financial audits and criminal background checks for the owners.
The credit union also charges recurring fees to cover the cost of ongoing due diligence and reporting required by FinCEN. For growers, the credit union charges $5,000 a month. For dispensaries, it’s $7,500.
“We're verifying that they're not breaking any laws, not evading taxes, not doing anything that could be a legal or ethical violation,” the executive said. “We assume we're going to be investigated at some point by our regulators and maybe by the IRS or the DEA.”
Companies also have to hire the armored car services to take their cash directly to a Federal Reserve Bank branch. “We don't want cash coming to the credit union,” the executive said. “If we did, then we’d have people signing up to rob the place.”
Other businesses that handle lots of cash, such as big-box stores, often have their cash sent directly to the Federal Reserve.
Matthew Schiffgens, a spokesman for the Federal Reserve Bank of San Francisco, said in an email that it’s no different for marijuana businesses — with the understanding that the credit union must make sure that its clients are following FinCEN guidelines and other rules.
The National Credit Union Administration, the industry’s insurer and chief regulator, also has taken an agnostic approach to cannabis, telling credit unions to proceed with caution.
“We've said, look, this is your business decision,” spokesman John Fairbanks said. “We expect you are going to analyze the risks of doing business with these companies and take prudent and necessary steps to mitigate that risk.”
To that end, the L.A.-area credit union is not making loans to cannabis businesses. It’s easy for the credit union to close down a checking account if it thinks that a business is breaking the rules, but unwinding a loan could be trickier. And if federal authorities go after a business and seize its assets, the credit union might be unable to collect.
Despite the high fees, plenty of companies are signing up for accounts.
Dan Grace, chief executive of Dark Heart Nursery in Oakland, which supplies cannabis plants to dispensaries and commercial growers, figures that two of his company’s 50 employees spend all their time on cash management. He said a bank account that would cost him $60,000 a year in fees would more than pay for itself.
“When we have employees handling so much cash, we have to have lots of checks and balances,” said Grace, who is not one of the credit union’s clients.
Others, though, balk at the price. Anderson said there’s no way it would make sense to pay $7,500 a month for a checking account for his dispensary.
“They’re trying to rob the industry,” he said. “They all look at us like cash cows. I’d rather take my chances and do what we’ve been doing.”
Chiang’s working group has focused largely on the problems faced by cannabis businesses because of shaky access to banking, but is now turning to potential solutions.
Hezekiah Allen, executive director of the California Growers Assn. and a working group member, said one idea that’s caught his interest is the creation of a “bankers bank” — some kind of private entity that could do upfront due diligence and compliance work.
“Our members would go through a week or 10-day-long screening process and, if they meet the requirements, they’d be able to open an account with one of a dozen banks,” Allen said.
Nicole Howell Neubert, an attorney who works with cannabis businesses and a member of Chiang’s group, said at this point she hopes that the state can simply find a way to make a few more banks and credit unions feel more comfortable.
“Ultimately, it requires a federal fix to address the issue,” she said. “But I think there will be some enterprising, smaller financial institutions that will see this as an opportunity and, I hope, move forward.”
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