Bummer About All That Cash


One of the hottest-developing industries in the US, marijuana-related businesses, is still practically shut out of the modern payment system because of an unusual patchwork regulatory situation. The result is that dealing with the cash, banking, and financing parts of this business are stunted and twisted into strange shapes.

Schedule 1 Substance

The root of the weird regulations and patchwork solutions is that federal law classifies marijuana as a “Schedule 1” substance, the same as heroin, ecstasy and LSD. Even though marijuana is legal for recreational use in 9 states and for medical use in another 31, regulated financial institutions really, really don’t like the risk of dealing with businesses making money from a Schedule 1 substance. They can’t afford to run afoul of federal laws and regulations. Even in legalized states, sometimes as few as one bank in a whole state, and never more than a handful of banks, offer traditional deposit-taking banking services to marijuana-related businesses.

In addition, major credit card companies like Visa, MasterCard, and American Express consistently refuse to process any payments from any company that touches the product. That means retail customers can’t ever pay with credit or debit cards. Even new fin-tech person-to-person payment services like Venmo, PayPal, and the Cash App regularly shut down services for marijuana-related businesses when they catch a whiff of it. Bank-based lending to the industry essentially does not exist either.

And remember, the industry is not just retail stores, but everything that touches a marijuana plant, from growers to cultivators to processors to cartridge makers to transporters to retailers. It all operates at the fringes of the traditional banking, payments, and finance sector.

Necessity Meets Invention

Morris Denton, CEO of an Austin-area medical cannabis dispensary Compassionate Cultivation, the first licensed dispensary in Texas, confirmed to me that the banking and finance side of running his business remains “a big pain in the butt.” Very few banks are willing to either take the risk or engage in the regulatory headache of working with businesses like his.

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