99 Problems and Cash is King
The legal cannabis industry is slowly making its way across the ballot boxes of the nation turning the tides on whether or not you consider this organically grown plant a taboo anymore. Entrepreneurs, both young and old, flock by the masses to break ground in States such as Washington, D.C., Colorado, California and, newest to the list, Vermont hoping to get rich off of this booming new industry. With so much popularity, while still being federally illegal, the road to legalization hasn’t been easy, to say the least. One of the biggest thorns in the side of each respectable dispensary owner and marijuana grower is: cash..lots and lots of cash. At first you may begin to wonder, but then the realization sets in. Because Marijuana is till federally listed as being illegal, federal banks will not accept cash from dispensary owners or growers because it would then be considered money laundering in the eyes if the federal government. But wait.. the States deem it legal so why won’t the banks comply in those states? Well, there is the thing called the Federal Deposit Insurance Corporation or FDIC that preserves and promotes public confidence in the U.S. financial system by insuring deposits in banks and thrift institutions for at least $250,000. This is what the banks and credit unions don’t want to lose due to them accepting money from a business or ancillary that profits off the sale of cannabis. So thus the problem of cash was born. Owners are dealing with a dangerous amount of loose cash of which no banks will accept.
The Cole Memos
Back in 2013 and 1014, Deputy Attorney General, James M. Cole released two separate, but similar, memos in regards the the growing cannabis industry. The first, dated August 29, 2013, addressed the Guidance Regarding Marijuana Enforcement. This memo reassured Credit Unions that as long as they followed eight specific enforcement priorities listed in the memo, that their institution would not be jeopardized. The memo goes over each guideline on how, why and when t is enforced, now, based on that credit union that deals with a Cannabis Related Business or MRB. The second memo, released on February 14, 2014 addresses the Guidance regarding Marijuana Related financial Crimes. Now, this memo is meant to reinforce the first memo released in 2013. This memo gives credit unions guidance on how to report on accounts that are linked to MRBs. Banks can now report to the Financial Crimes Enforcement Network or FinCEN through the use of Suspicious Activity Reports or SARs. SARs are reported based on the activity of the account that relates to the information from that account linked to the MRB. A “Marijuana Termination” SAR is when a financial institution deems it necessary to terminate a relationship with a MRB in order to maintain an effective anti-money laundering compliance program. A “Marijuana Priority” SAR is when a financial institutional as a reason to believe that, based on extreme vetting, a MRB implicates one or more of the Cole Memo priorities or if they are in violation of state law. Lastly, “Marijuana Limited” SAR is the report you want to receive if you still want to keep your account with that bank. This SAR indicates that the MRB is in compliance with all Cole Memo and Sate laws. Now knowing this, we being to breath a little easier knowing there may be some relief in the future of MRBs banking with federally insured financial institutions..well guess again.
Class is in Sessions
Fast forward to today and we have a new memo with a new Attorney General: Jefferson B. Sessions. AG. Sessions, has always taken a hard stance on drugs even early in his political career so it is to no surprise that he wants to roll back the progress on the legal cannabis industry. He first made his debut by releasing his one Memo dated January 4, 2018. The half page memo addresses Marijuana Enforcement and directly rescinds, effective immediately, both Cole Memos and any other memorandums that were in favor of the legal cannabis industry. This was a blow to the cannabis industry but it was a foreseen blow so the mourning was already finished and entrepreneurs alike were already working on new solutions for their cash problem. Meanwhile States that still have instilled laws allowing the sale of medical and recreational cannabis are ready to take the first wave of dispensary and grower applicants looking to file by February 15, 2018 in order to be accepted to receive a license to dispense or grow. Insurers, Security Corporations, and HR regulation organizations are looking to cash in on the many mandated services required by the Sate in order to be accepted to receive a license. For instance, growers must have a security system installed and in operation, including a burglar alarm that reports to an outside monitoring station. Also required is a TL-15 or ½ ton safe bolted to the floor (if less than 900 lbs) and motion detectors must be installed in the safe room location. Given all of this, the State also requires that the applicant be insured and this is where things get interesting.
The Catch 22
Insurance coverage requirements can include and are not limited to: workers’ compensation, business interruption, theft, products liability, cargo insurance, BOP coverage, equipment breakdown, and cyber liability – particularly for those medical marijuana dispensaries that store patients’ personal information. In Michigan we know that workers’ compensation and general liability are required by the sate to have bin place before your application is filed. Here is where the catch is, general liability can be easily quoted and put into motion but worker’s compensation cannot. Due to this industry not being able to facilitate payroll because of no banking options, workers comp (as it is often abbreviated) can not be applied. In order to figure out how much to charge for workers’ comp you must have payroll. Whats even stranger is that Michigan has two separate class codes for workers’ compensation, one for growers and one for dispensaries. So, to recap, workers’ comp class codes exist but cannot be facilitated since MI financial institutions will not let MRBs have bank accounts. This is what has been the ongoing headache for growers, dispensaries, and all of the ancillary businesses who encounter trouble when dealing with the abundance of loose cash continuing to pile up.
How PEOs can Change the Game
Apart from the Federal Government, the States that are progressing with the cannabis industry are starting to see financial institutions accept business from MRBs but they are rare to come by. The few that do bank with MRBs charge substantial premiums for all of their due diligence for that account. Almost all of that is to prevent any one of the eight priorities that were listed in the Cole Memos back in 2013 and 2014. Since these MRBs are going directly to these financial institutions there is no firewall or “buffer” of security/vetting between the MRB and the financial institution. This is where a PEO (Professional Employer Organization), like Champion Employment, can be that ancillary business, or firewall, between the financial institution and the MRB. Champion offers services that can help ease the mind of the financial institution willing to accept money from a vetted and state-law abiding MRB. Since the only money being deposited from the MRB will be pulled by Champion to facilitate payroll, the bank can feel more at ease that they are not using that account solely to store their profits. This money would be to pay not just their employees but also the state and federal taxes as well as employee benefits and, of course, worker’s compensation. This can be a full proof method of not only solving the banking issue with a lot of these MRBs but also adding to the economy by following through and paying all appropriate taxes and fees associated with running a profitable business. Employees would not be able to grow their credit and have direct deposit, business owners would see decreased employee turnover and an increase in overall growth while at the same time making sure that these MRBs are 100 percent compliant when it comes to governmental and state regulations in this budding cannabis industry.