Menus Subscribe Search

The Future of Money

cannabis-station

Denver, Colorado's Cannabis Station. (Photo: Jeffrey Beall/Flickr)

Legal Marijuana’s Money Problems

• January 15, 2014 • 10:00 AM

Denver, Colorado's Cannabis Station. (Photo: Jeffrey Beall/Flickr)

As Washington and Colorado attempt to build marijuana-based industries that are still seen as illegal in the eyes of the feds, those involved in the business of pot are finding themselves targeted by crooks and government officials alike.

As marijuana moves toward legalization in some areas of the United States, a unique kind of crime wave is following. In November 2013 alone, two masked, armed men robbed a dispensary in Longmont, Colorado; a security guard was shot in an attempted dispensary theft in Palmdale, California; and four people kidnapped and sexually tortured another California dispensary owner in an attempt to force him to reveal where in the desert he was burying bags of money (he was actually just driving to meetings with potential investors).

These incidents are all driven by a surprising fact: marijuana businesses are often (though not always) sitting on top of piles of cash. Whether it’s a warehouse that grows the plant or a retail outlet that sells it, cannabis companies are being forced to do their business in physical bills because many banks and credit card outlets, including Visa, MasterCard, and BECU, the largest credit union in Washington, refuse to work with them on the grounds that the market is still illegal under federal law. That refusal is endangering everyone involved, from business owners to workers, as well as cutting off potential economic growth.

During a recent conference on launching marijuana businesses, Denver Relief Consulting founder Ean Seeb warned potential entrepreneurs to have strict rules in place for how money is managed. “We’re a cash-based business—cash and marijuana,” he said. “You don’t want to get caught not following safety procedures.” The consequences include attracting robbers as well as risking employee theft of money or product (Connecticut’s medical marijuana laws force all industry workers to wear pocketless clothing). Yet before the drug even changes hands, cannabis companies face difficult monetary barriers.

The marijuana market must walk a tricky line between being regulated enough to keep amateurs from dabbling in large-scale drug production and not being so strictly controlled as to discourage entrepreneurship.

“Companies in our space have a tough time getting access to capital,” says Troy Dayton, the founder of Arcview, a California-based marijuana-focused investment firm. That means “no bank loans, no real institutional money” is available to kickstart a small business. “Public companies aren’t really the place to be” for funding, he says. Private investment firms like Dayton’s are rising as a substitute for the missing loan funding, and making a profit while banks miss out.

The lack of loans presents a problem because marijuana grow operations and dispensaries have large upfront costs.

Jason Katz runs the grow for Local Product, a dispensary and consultancy in Denver, Colorado, where law requires grow operations and retail outlets to be integrated into single companies. A warehouse grow space with an industrial electric power upgrade could run a few hundred thousand dollars, he says. Professional grow lights cost around $400 each and a large operation could require dozens, along with at least one employee per light, Katz offers as a metric, plus extra staff to manage dispensary stores.

Simply obtaining the license to run such a business could cost $50,000 in government fees and lawyer assistance, according to Katz. “Make sure you have a source of money that’s prepared to add capital to the pool if need be,” he says.

The marijuana banking ban also means difficulty in storing money. But some marijuana businesses are finding ways around this issue. “Use a generic-sounding name,” Ean Seeb says. That means if you don’t append obvious adjectives like “green,” “happy,” or “psychedelic” to your cannabis company, bank clerks just might turn a blind eye.

But getting in with a financial institution doesn’t mean you can depend on it. Seeb recounted how a bank he had worked with for four years suddenly dumped his company. “Don’t get complacent,” he says. “Open multiple accounts, so when the inevitable happens you’re prepared to be able to continue business.”

Complying with the laws regulating legal marijuana can also cost more than it does for those in more mundane industries. Joe Stevens, the founder of Greenleaf Compassion, New Jersey’s first functioning dispensary, hadn’t anticipated how expensive his operation would be. Under IRS code 280e, those engaging in federally illegal activities aren’t allowed to write off their expenses. Stevens is thus forced to pay a 39 percent tax, one of the highest rates in the state, on all of his revenue without deducting for normal business costs.

If you try to skirt the government’s cut, the penalties are also harsher for businesses in the gray area of the law. “Pay your taxes, all of them,” Katz says. “Don’t for a second try to pull the wool over the eyes of the IRS; they will crush you.”

The marijuana market must walk a tricky line between being regulated enough to keep amateurs from dabbling in large-scale drug production and not being so strictly controlled as to discourage entrepreneurship. In Colorado and Washington, large upfront fees and an extensive licensing process ensure professionalism, but the lack of a good financial structure is hurting what could be America’s next great growth industry.

Thankfully, the situation is starting to change. In September of last year, Bank of America announced that it would accept Washington state’s revenues from marijuana taxes, despite the fact that the money is dirty in the eyes of the federal government. Credit cards like Visa and MasterCard still don’t work with cannabis companies, but some dispensaries are finding ways to accept plastic through ATM-like systems, improving safety and convenience for workers and customers alike.

Colorado and Washington House representatives Ed Perlmutter and Danny Heck are introducing the Commonsense Marijuana Business Access to Banking Act, which would “provide financial institutions assurance that they can make their own business decisions related to legal, financial transactions without fear of regulatory penalties or criminal prosecution.” The law would clear the way for more financial institutions to accept cannabis cash.

Yet it still takes a lot of resolve to create a legitimate business in this fitfully lawful form of drug dealing. Founders must be aware that the worst could happen, whether that means getting targeted by crooks or the government—or both. “You need to be able to go full steam ahead knowing that what you’re doing is not federally legal,” Denver Relief Consulting’s Ean Seeb says. “Keep in mind the possibility of going to jail. Plan for your family.”

Kyle Chayka
Kyle Chayka is a freelance technology and culture writer living in Brooklyn. Follow him on Twitter @chaykak.

More From Kyle Chayka

A weekly roundup of the best of Pacific Standard and PSmag.com, delivered straight to your inbox.

Recent Posts

August 29 • 4:00 PM

The Hidden Costs of Tobacco Debt

Even when taxpayers aren’t explicitly on the hook, tobacco bonds can cost states and local governments money. Here’s how.


August 29 • 2:00 PM

Why Don’t Men and Women Wear the Same Gender-Neutral Bathing Suits?

They used to in the 1920s.


August 29 • 11:48 AM

Your Brain Decides Whether to Trust Someone in Milliseconds

We can determine trustworthiness even when we’re only subliminally aware of the other person.


August 29 • 10:00 AM

True Darwinism Is All About Chance

Though the rich sometimes forget, Darwin knew that nature frequently rolls the dice.


August 29 • 8:00 AM

Why Our Molecular Make-Up Can’t Explain Who We Are

Our genes only tell a portion of the story.


August 29 • 6:00 AM

Strange Situations: Attachment Theory and Sexual Assault on College Campuses

When college women leave home, does attachment behavior make them more vulnerable to campus rape?


August 29 • 4:00 AM

Forgive Your Philandering Partner—and Pay the Price

New research finds people who forgive an unfaithful romantic partner are considered weaker and less competent than those who ended the relationship.


August 28 • 4:00 PM

Some Natural-Looking Zoo Exhibits May Be Even Worse Than the Old Concrete Ones

They’re often designed for you, the paying visitor, and not the animals who have to inhabit them.


August 28 • 2:00 PM

What I Learned From Debating Science With Trolls

“Don’t feed the trolls” is sound advice, but occasionally ignoring it can lead to rewards.


August 28 • 12:00 PM

The Ice Bucket Challenge’s Meme Money

The ALS Association has raised nearly $100 million over the past month, 50 times what it raised in the same period last year. How will that money be spent, and how can non-profit executives make a windfall last?


August 28 • 11:56 AM

Outlawing Water Conflict: California Legislators Confront Risky Groundwater Loophole

California, where ambitious agriculture sucks up 80 percent of the state’s developed water, is no stranger to water wrangles. Now one of the worst droughts in state history is pushing legislators to reckon with its unwieldy water laws, especially one major oversight: California has been the only Western state without groundwater regulation—but now that looks set to change.


August 28 • 11:38 AM

Young, Undocumented, and Invisible

While young migrant workers struggle under poor working conditions, U.S. policy has done little to help.


August 28 • 10:00 AM

The Five Words You Never Want to Hear From Your Doctor

“Sometimes people just get pains.”


August 28 • 8:00 AM

Why I’m Not Sharing My Coke

Andy Warhol, algorithms, and a bunch of popular names printed on soda cans.


August 28 • 6:00 AM

Can Outdoor Art Revitalize Outdoor Advertising?

That art you’ve been seeing at bus stations and billboards—it’s serving a purpose beyond just promoting local museums.


August 28 • 4:00 AM

Linguistic Analysis Reveals Research Fraud

An examination of papers by the discredited Diederik Stapel finds linguistic differences between his legitimate and fraudulent studies.


August 28 • 2:00 AM

Poverty and Geography: The Myth of Racial Segregation

Migration, regardless of race, ethnicity, gender, or sexuality (not to mention class), can be a poverty-buster.


August 27 • 4:00 PM

The ‘Non-Lethal’ Flash-Bang Grenades Used in Ferguson Can Actually Be Quite Lethal

A journalist says he was singed by a flash-bang fired by St. Louis County police trying to disperse a crowd, raising questions about how to use these military-style devices safely and appropriately.


August 27 • 2:00 PM

Do Better Looking People Have Better Personalities Too?

An experiment on users of the dating site OKCupid found that members judge both looks and personality by looks alone.


August 27 • 12:00 PM

Love Can Make You Stronger

A new study links oxytocin, the hormone most commonly associated with social bonding, and the one that your body produces during an orgasm, with muscle regeneration.


August 27 • 11:05 AM

Education, Interrupted

When it comes to educational access, young Syrian refugees are becoming a “lost generation.”


August 27 • 9:47 AM

No, Smartphone-Loss Anxiety Disorder Isn’t Real

But people are anxious about losing their phones, even if they don’t do much to protect them.


August 27 • 8:00 AM

A Skeptic Meets a Psychic: When You Can See Into the Future, How Do You Handle Uncertainty?

For all the crystal balls and beaded doorways, some psychics provide a useful, non-paranormal service. The best ones—they give good advice.


August 27 • 6:00 AM

Speaking Eyebrow: Your Face Is Saying More Than You Think

Our involuntary gestures take on different “accents” depending on our cultural background.


August 27 • 4:00 AM

The Politics of Anti-NIMBYism and Addressing Housing Affordability

Respected expert economists like Paul Krugman and Edward Glaeser are confusing readers with their poor grasp of demography.


Follow us


Subscribe Now

Your Brain Decides Whether to Trust Someone in Milliseconds

We can determine trustworthiness even when we’re only subliminally aware of the other person.

Young, Undocumented, and Invisible

While young migrant workers struggle under poor working conditions, U.S. policy has done little to help.

Education, Interrupted

When it comes to educational access, young Syrian refugees are becoming a “lost generation.”

No, Smartphone-Loss Anxiety Disorder Isn’t Real

But people are anxious about losing their phones, even if they don’t do much to protect them.

Being a Couch Potato: Not So Bad After All?

For those who feel guilty about watching TV, a new study provides redemption.

The Big One

One in two full-time American fast-food workers' families are enrolled in public assistance programs, at a cost of $7 billion per year. July/August 2014 fast-food-big-one

Copyright © 2014 by Pacific Standard and The Miller-McCune Center for Research, Media, and Public Policy. All Rights Reserved.