By Gary Cohen
Chatter surrounding cannabis and banking is loud. The Senate Consumer Protection and Financial Institutions subcommittee held a hearing on access to banking for state-legal cannabis businesses. The House Financial Services committee held its first-ever hearing on the issue as well. Both took testimony from industry participants and financial institutions alike, both sides providing a compelling case for a solution.
This comes alongside Oregon Senator Ron Wyden’s proposed legislation for a cannabis banking fix. And a very similar proposal is making its way around the U.S. House. While it’s not clear if either legislation would pass their respective bodies of Congress, the potential for big banks to get involved excites investors. Cannabis stocks have soared.
It’s good that this problem is being taken seriously at the federal level. But as lawmakers consider their options, it’s important for the industry to properly paint just how untenable the current situation is.
Many are Having the Wrong Conversation
The conversation surrounding the cash-only nature of cannabis is almost always framed as a customer convenience issue. But customers are easily trained, especially since shopping in a dispensary is a totally new experience for most.
A customer might be annoyed the first time, and a dispensary should have an ATM for these scenarios, but after the second or third visit, customers are trained to bring cash. In fact, many dispensaries see high on-site ATM usage rates in the first six to twelve months of opening, but see a steep drop off after that.
The cannabis cash problem isn’t about customer convenience. The real cannabis and banking conversation needs to happen beyond the sales counter. What happens to all that cash once its taken from the customer? Where does it go? How does it get there?
To understand the full scale of the banking problem, you’ve got to follow the money.
Following the Money: Managing Cash in Cannabis
A brand new customer walks into your dispensary. It’s their first time ever participating in the new legal market and they are pumped. Because legitimate financial institutions don’t offer cannabis payment processing or merchant accounts, your store has a cash-only policy. The customer is annoyed but since you have an ATM on site and they’re excited about their first purchase, they make a mental note to remember cash next time. The customer withdraws cash from the machine.
But that cash has to come from somewhere. A retailer has to estimate how much cash they should keep on hand to fill that ATM each morning and some retailers simply don’t have the cash to keep an ATM stocked. The more use an ATM gets, the more cash that has to be stored on site…creating more liability for theft and robbery.
So now the customer has cash, they’ve consulted your store’s digital menus, and they make a purchase. The cash is now in the hands of your budtender and they store it safely in their register.
Storing Cash in Your Cash Register
On busy days, a large retailer can take in tens of thousands of dollars. A store manager obviously can’t keep that amount of cash on the sales floor. How do you keep track of money as it moves around to fill other registers? If a manager is in the back office, how do they know when a drawer is getting too full?
A smart register should harness the same capabilities used in casinos. From the back office, a dispensary manager and owner should be able to log in and keep an eye on every drawer.
At the end of the day, you and your store manager close up shop. Part of that duty is counting the money and then deciding how much is necessary to keep on hand for the next business day.
Cash Flow for Your Vendor
Is tomorrow a busy day? Are you expecting a delivery? Since you don’t have a bank account to write checks out of or a business credit card to pay invoices online, suppliers must be paid in cash. Is it payday for your staff? You’ll need to consider all of this and more in your calculation. The more cash needed to do business, the more liability.
Transporting & Depositing Cash
After you determine the cash necessary to conduct business the next day, you store it safely away in the vault. But you still have possibly tens of thousands of dollars in small bills to contend with. Where do you store mounds of cash when you don’t have a bank account in which to deposit it? And even if you do have a bank, how do you transport the cash there safely without putting an employee or yourself at risk? Large armored car services like Loomis won’t transport cannabis cash.
For better or worse, this lack of access to banking has spurred innovation. Some, like payment processing schemes, are illegitimate. Others, like bonded, insured, well-trained, cannabis-friendly cash transportation companies work well. They will come to your store in different cars, on different days, at different times to pick up your cash and safely transport it to a secure storage facility (of which you may never know the location) using different routes each time. Anytime you need more cash on hand, you have to call your transport guys.
This complicated cash lifecycle doesn’t even include the fact that many dispensary owners travel sometimes hundreds of miles to deliver their taxes in cash to their state tax office.
What Comes Next for Cash in Cannabis?
When you follow the money beyond just the inconvenience for the customer, a larger story and problem emerges. A multi-billion dollar, cash-only industry is ripe for internal theft and robbery. The former places an undue burden on the dispensary owner and the latter increases the risk of violent crime — a community-wide issue.
As the U.S. Congress debates the best solution, and we celebrate that a potential fix is on the horizon, protect your business, your employees, and yourself with safe cash management strategies. Hire reputable, insured, and bonded companies to help and make sure your store is equipped with the latest cash management technologies.