The defeat of the SAFE Banking Amendment is not just about cannabis. It is about addressing the needs of a booming industry. Businesspeople, farmers, patients, physicians and thousands of others who work in cannabis and ancillary fields remain shut out of much-needed banking services.
On Wednesday, June 13, 2018, the House Appropriations Committee voted down a measure that would have protected banks and financial institutions that deal with all aspects of the medical and recreational cannabis industry.
The hope was that growers, processors, dispensaries and just about anyone else in the industry could move away from the cash-only model, which is not only dangerous but also prevents businesses in the industry from fully functioning as legal, tax-paying entities.
“Until the lawsuits involving the RICO Act are settled, the banks aren’t going to work with the cannabis industry for fear of being accused of money laundering,” said Matt Enos, employment consultant with Hybrid Payroll, a professional employer organization that provides small and midsize cannabis businesses with full-service human resources and financial services.
RICO, the Racketeer Influenced and Corrupt Organizations Act, is a federal statute under which acts deemed to have been undertaken as part of an ongoing criminal organization, such as money-laundering, can be prosecuted.
“What ends up happening is that cannabis businesses form shell companies to deal with their earnings, which is illegal and essentially money laundering,” Enos told Marijuana.com. “Most companies would prefer to deposit their money in banks, pay their staff and even offer 401k plans, but the federal government is standing in the way.”
In the meantime, Hybrid Payroll is literally hauling away cash from dispensaries, growers, producers and many others in the industry as their earnings pile up at the end of the month.
“We truck the cash to the Federal Reserve in each state where we have clients, and apply it to the company’s EIN (Employer Identification Number) as their ‘co-employer,’” he explained. “This enables us to put our clients’ money toward payroll, workers comp, health insurance, pay their quarterly taxes or whatever they need us to do with their earnings.”
The Federal Reserve accepts bags of cash knowing from whence it came?
“That’s the real head-scratcher…so long as we don’t cross state lines,” Enos said. “It’s another example of what a profoundly gray and contradictory area the cannabis industry is compelled to operate in.”
In states where medical or recreational cannabis is legal, the lack of access to financial services can be a serious impediment. According to New Frontier Data, an analytics company that monitors the industry, current cannabis earnings of around $8 billion in annual revenues are projected to reach $24 billion by 2025.
With an estimated 70 percent of cannabis businesses having no financial institution or bank to turn to for their cash transactions, companies like Hybrid Payroll will continue filling the void.
“For the time being, we’re helping to keep cannabis companies stay out of trouble, but what we really want is for the whole industry to succeed and to do that, we need banking privileges like any other business,” Enos said.