The Money Pot

PotEraseThanks in part to Scotts Miracle-Gro, the payments industry might—might—soon be able to play ball with locally legal cannabis industries.

It’s that part about “locally legal” that until now has proved the problem. Thirty-three states and Washington D.C. have decriminalized cannabis for medical or recreational purposes, but the federal government hasn’t. summed up the dilemma this way:

Marijuana may be legal in your state. Does that mean you can pay for it with a credit card? … there are two answers to this question. The first one is, maybe—some marijuana dispensaries claim to accept credit cards. The second answer, though, contradicts the first one. According to numerous experts, the major credit card networks do not allow merchants to use their cards for marijuana purchases—they do not even have a merchant code for such purposes—and will shut down any account they find out of compliance with this policy.

The result is a burgeoning, profitable industry that has a difficult time getting banks and payment systems to take them on as clients. This represents a huge lost opportunity cost for the financial services industry. As Forbes reported,

Imagine an industry with $9 billion in sales—equivalent to the entire snack market —where only 30% of businesses had a bank account. That’s the situation we face today in the legal marijuana business. Hardworking commercial operators are struggling to find banks that will work with them, forcing these entrepreneurs to conduct most business with cash.

Not just financial institutions tread lightly around the cannabis patch. According to FindLaw,

You can run into problems with the CSA even if you’re not directly involved with the marijuana industry. If you provide services to a business that operates under state marijuana laws, you may also be violating federal law and thus subject to prosecution. So if you run a janitorial service and have a client that operates a dispensary, you may be profiting from illegal drug trafficking. The CSA also makes it unlawful to “knowingly open, lease, rent, maintain, or use property for the manufacturing, storing, or distribution of controlled substances.” So landlords that have tenants involved in state-permitted marijuana industry may risk federal asset forfeiture or other criminal fines.

Forcing cannabis dispensaries to a cash-only basis ironically creates potential for the very money laundering that federal law seeks to prevent. It also hangs “Mug me—I’m carrying cash” signs on the backs of merchants and customers.

The federal government has done an excellent job of confusing matters. In 2014 the Obama administration provided guidelines for financial institutions doing business with legal cannabis industries. But banks were slow to jump on the weedwagon and, it turned out, wisely so: four years later, the Trump administration re-tightened the rules

Enough is enough, says the American Bankers Association in so many words. “While ABA takes no position on the moral issues raised by legalizing marijuana,” its policy position states,

… the time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where marijuana has been legalized for medical or adult use. Those banks, including institutions that have no interest in directly banking marijuana-related businesses, face rising legal and regulatory risks as the marijuana industry grows. Current proposals in both the Senate and the House that seek to provide greater clarity and bridge the gap between state and federal law provide a solid starting point for discussion. We look forward to working with policymakers of both parties to find solutions that provide the legal and regulatory certainty banks need to best serve their communities.

As for Scotts Miracle-Gro, the company states unabashedly:

… we believe—at a minimum—Congress should honor the principles of federalism and states’ rights by passing legislation that respects the will of voters and state legislatures that have elected to adopt their own approach to authorizing the use of cannabis within their boundaries … state-licensed cannabis businesses should have access to banking and other financial services, operate with the same tax structure as other businesses and not be threatened by federal prosecution if they comply with state laws.

Scotts’s interest lies more in hydroponics than in fertilizer, which would have been my first guess. Last month, The Wall Street Journal reported,

Jim King, senior vice president of corporate affairs at Scotts, which owns the largest distributor of hydroponics equipment in the U.S., said his company doesn’t currently sell its U.S. products directly to marijuana companies. “If we tried to do that today, our banks would tell us, ‘No that’s crossing a line that we’re not comfortable with,’” Mr. King said of selling directly to the industry.

Meanwhile, the situation has spawned a host of work-around payments businesses such as NaturePayInstabillDama Financial, PayQwick, Evergreen Gateway, ZodakaCannabis CardPay, and others. 

It’s high time, no pun intended for decriminalization. (Okay, yeah, pun intended.) A $9 billion industry isn’t going away. Let’s make it safe for all participants, financial institutions and payments systems included.

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