A look inside dangerous banking habits of the cannabis industry
Two ultra-buff paramilitary men clad in bulletproof vests and holding rifles sit behind the windshield of an armored vehicle. The driver is a former Marine who now serves as the personal bodyguard for CEOs of multi-billion dollar companies. In the passenger seat is a Green Beret who once safeguarded a $60 million diamond. In the back of their gargantuan truck is tens of thousands of dollars in cash.
The armored vehicle arrives at MPSI Security’s Denver headquarters, where a dozen cameras watch the men enter a large safe, stacking straps of twenties atop a mountain of bills. The cash inside the safe belongs entirely to marijuana dispensaries. These heavily protected cash fortresses are how some dispensaries protect their revenue when banks want nothing to do with them.
Although weed may be legal in the state of Colorado, under federal law, it’s still a Schedule I drug and illegal to possess, manufacture, or sell in any quantity. Federal law also prohibits national banks and credit unions from working with marijuana businesses. That means financial institutions can neither extend loans to dispensaries nor deposit marijuana earned money. An excessive amount of cash in-store and no bank to safely deposit it in has made handling finances as a dispensary a convoluted clusterfuck of dangerous inefficiency.
A FRIGHTENING AMOUNT OF CASH
Legal marijuana is the fastest growing industry in the U.S. According to a new market research report, state-sanctioned marijuana sales have skyrocketed 80 percent in the past year to nearly $5.4 billion — the vast majority of those sales made in cold, hard cash.
However, despite the steady flow of incoming funds, dispensaries can’t afford to hold on to their revenue. Carrying too much cash makes them tantalizing targets for violent robberies.
Since Colorado legalized recreational marijuana stores in January 2014, the Denver Police Department has responded to over 200 burglaries at marijuana businesses. Just this summer, Green Heart, a marijuana dispensary located in Aurora, Colo., was violently robbed at gunpoint and its security officer shot and killed.
Less than a week later, another dispensary guard was shot in the face during an armed robbery of a marijuana medical clinic in San Bernandino, CA, with three robbers escaping with bursting sacks of cash.
Greg G is an owner of The Green Room dispensary located in Boulder, Colo. He’s designed the dispensary’s state of the art security system to function much like a bank’s, yet still doesn’t feel safe keeping cash within the walls of his business. “If you have a lot of cash lying around, and a lot of product worth a lot of cash, you have to be mindful of the added risk that brings,” he says. To mitigate the everyday risk, Greg rids his business of bundles of cash by sending them off in armored vehicles.
MPSI Security, a private security firm for the legal marijuana industry, offers armored vehicles for safe transportation of dispensary assets. Michael Julian, the president and CEO of MPSI Security, is confident about the specs of his armored trucks: “They’re really big, really heavy, and really hard to shoot through.”
Julian often hires former military and law enforcement officials and trains them extensively in firearm and hand-to-hand combat. He then sends them to evasive driving training, where his drivers learn tricks reminiscent of a Fast and the Furious movie, to master techniques of escaping criminals who attempt to capture cash or product.
Commenting on the necessity of his service for dispensaries, Julian says, “When they try to transport their cash themselves, they'll use someone with no security training and no idea how to avoid a criminal act. They’ll send a 20-year-old girl off in a 12-year-old Honda Accord to move tens of thousands of dollars. It’s extremely dangerous for the business and even worse, dangerous for the employees.”
Jaime Lewis, owner and founder of a Denver edibles company called Mountain Medicine, takes safety a step further than just armored car services. She factors the threat of robbery into practically every business decision. “We only operate in daylight hours, we rotate pay schedules for employees, and rotate pickups for customers. We have a buddy system where we walk them to their vehicles to make sure they get back to their cars safely.” Both Lewis and her employees say they live in fear. And with banks’ refusal to budge, they likely won’t be feeling safer anytime soon.
REFUSAL TO HELP
Evan first encountered banks’ denial to service dispensaries when working as a teller for a small Colorado bank. Evan recalls, “An older gentleman rolled into the drive-thru and turned in a large stack of cash for deposit. My co-worker opened the messenger tube filled with cash and made an expression of confused bewilderment. The money reeked of marijuana.”
“He discreetly rushed the money to the branch manager, who held it close to her face for a long, forceful whiff. The corners of her mouth dramatically downturned, and she began shaking her head in severe disapproval.”
“She approached the microphone of the drive-thru window and in an accusatory tone, demanded from her customer, ‘Sir, I’m going to need to know the source of this cash.’ The man hesitated at first, and then responded, ‘They’re rent payments from my tenants.’ My branch manager took a moment to chew over his response, eventually making the call that he was lying. With this phony sympathetic tone, she murmured into the mic, ‘I’m sorry sir, but we cannot accept your deposit.’”
Evan’s branch manager returned the cash to the customer, and then flagged all of his accounts in the bank’s computer system. One suspicious whiff of weed from an uptight banker, and the man lost all of his bank accounts.
Greg G of The Green Room had a similar experience with his lifetime bank. For years, he had an intimate, open business relationship with a large national company. He fostered friendships with his bankers, and even knowing the nature of his work, they were eager to help his business flourish.
Out of the blue, Greg received a letter from the bank’s corporate headquarters stating that every account he had with the bank was being closed: not only his business account, but any account that had his name anywhere near it.
Greg remembers, “Once they figured out I worked with a dispensary, the bank shut down my personal accounts, my savings accounts, my retirement account. They even shut down my parents’ accounts where I was listed as a signer. They went on an absolute rampage. It annoyed me to no end.”
The Feds have done well to ensure the risk of banking with dispensaries far outweighs the rewards. If a bank is caught in cahoots with a dispensary, the federal government may revoke the bank’s FDIC insurance, the safety net that insures up to a quarter-million dollars of each depositor’s precious money against fraud and bankruptcy. And in the highly competitive banking industry, losing FDIC insurance is a death sentence.
Seventy percent of Colorado cannabis businesses lack bank accounts altogether. The dispensaries that do have accounts frequently need to use dishonest means to achieve them. One manager of a Colorado dispensary chain speaking through anonymity claims, “Some owners will start another business with a different name, kind of like a holding company that owns the dispensary, and then register with the bank under it so the dispensaries remain unknown.”
For example, fictional dispensary ‘Denver Dank Nugs’ may register their account with the bank under the name of their innocuous holding company, ‘Alternative Health Innovations.’ If the name on the account is free of any red-flag phrases, like “dispensary” or “cannabis,” the business can usually fly safely under the radar.
However, once the banks begin funneling your cash through a shell company, it starts to look a lot like money laundering. Banks fear the L-word with a shaking horror, as breaking federal money laundering laws could land any employees involved in prison for up to 20 years.
The aversion from doing business with dispensaries doesn’t stop there: credit card companies refuse to get near weed money as well. This is why most pot shops, growers, and edible producers must deal exclusively in physical cash.
Greg G claims major credit card companies like Visa and MasterCard refuse to work with his business. Because of this, The Green Room’s transactions must be made entirely in cash.
He acknowledges the workarounds that would allow his dispensary to offer card services to his customers, but refuses to get involved. However, other dispensaries have no qualms with circumventing credit card companies’ policies. Greg’s honest business model results in his profits taking a hit. His competitors who sidestep the system to offer credit card services have a competitive edge over The Green Room, and that’s harmful to his overall business.
Many dispensaries that establish bank accounts using safe-title cover companies can use their alias to easily offer credit card services to their customers. When ‘Denver Dank Nugs’ charges your card for 2 grams of Ugly Stepsister, a harmless charge from ‘Alternative Health Innovations’ shows up on the card transaction. Using this strategy, card transactions credited to the harmless holding company won’t be flagged as illegal.
Sidestepping the law to further their business isn’t immoral in the eyes of dispensary owners. Most fully acknowledge that their transactions with credit card companies are illegal in the eyes of federal law. But they see no ethical dilemma when selling marijuana is technically federally illegal, too.
However, not all dispensaries with bank accounts achieve them surreptitiously. Most Colorado banks or credit unions won’t publicly acknowledge opening cannabis accounts, but several offer MMJ accounts on the sly.
Seven months after Greg’s bank shut down all The Green Room’s accounts, the business owners found a new bank. The Green Room now banks with Safe Harbor, perhaps the only marijuana-specific private bank in Colorado that’s completely transparent with the federal government.
Accounts do exist for those who are willing to find them — and pay their premium price tag. Charges for a basic marijuana business account can run up to $1,000 per month. So even if a bank or credit union is willing to open an account, a dispensary owner might balk at the price.
Toni Savage Fox, owner of Denver’s 3D Cannabis Center, isn’t working with a bank. She explains, “It’s mostly by choice. I won’t pay $1,000 a month for someone to store my money. It’s not worth it for me.”
Congress will need to enact legislation to bridge the federal-state disconnect. But federal cooperation seems a shot in the dark with the Republican Party now controlling both the House and Senate.
The government should have a vested interest in protecting an industry that generates a massive amount of tax revenue. This year the state of Colorado is expected to collect $120 million in marijuana taxes. It’s hypocritical for a government to collect over a hundred million dollars in marijuana money while still not moving forward on the issues of banking it.
As Greg says: “We live in a democracy. This is the word of the people, and this system is counterintuitive to what the people want. It’s time that the federal government pulls their head out of their ass and legitimizes what the states have approved.”