The cannabis industry is facing a serious conundrum: Profits are soaring in the U.S., but companies in the space don’t have access to basic financial services to handle their take. Marijuana’s federal status has made major banks wary of opening accounts for businesses in the sector, because handling money that has cannabis connections could be considered laundering. For the same reason, credit card companies generally don’t allow cannabis purchases.

Without leading financial institutions willing to serve them, many growers, dispensaries, and others in the space have resorted to dealing with large sums of cash. That liquid business model has opened them up to a range of potential issues, including how to pay employees and federal taxes as well as the possibility of being robbed.

“The United States cannot long remain in the present stalemate because, crucially, the marijuana industry continues to thrive,” wrote legal studies and business ethics professor Peter Conti-Brown in a brief published last year by the Wharton Public Policy Initiative. “An entire industry conducting all of its business in cash cannot be fairly taxed or regulated and, historically, has been associated with lawlessness.”

John Lord, president and CEO of Colorado cannabis retailer LivWell, told a Senate committee during a July hearing that he previously rented a former bank specifically to safeguard the company’s cash in its vault. He also once had to travel to the Internal Revenue Service in Denver with more than $3 million in greenbacks to pay federal taxes, he said. In a similar case, NPR recently reported that California cultivator Canndescent—backed by Jeff Monat W00’s Merida Capital Partners—used guards and armored vehicles to protect the company’s money against thieves.

But this troublesome cannabis “gray market,” as Conti-Brown calls it, could change if certain legislative bills successfully make their way through Congress. In September, the House of Representatives passed the Secure and Fair Enforcement Banking Act of 2019 with bipartisan support. The proposed legislation, which now faces a more uncertain fate in the Republican-controlled Senate, would prevent federal regulators from penalizing banks and other institutions for providing financial services to legal cannabis companies. Another bill—the Strengthening the Tenth Amendment Through Entrusting States Act—could open the door for financial institutions by amending the Controlled Substances Act to exempt marijuana activity that is legal under state law. Although both bills still must clear several hurdles to be enacted, they could eventually offer much-needed financial relief for legitimate cannabis businesses.


Published as “A Cannabusiness Conundrum” in the Fall/Winter 2019 issue of Wharton Magazine.