Millions of people around the country now use medical cannabis on a regular basis. Tens of thousands of retail pharmacies and dispensaries act as suppliers. All the economic activity surrounding medical cannabis takes place across 39 states and the District of Columbia. And yet, medical cannabis continues to be a cash-and-carry business for the most part.
If you have ever wondered why, you are not alone. It would seem that an industry capable of generating billions of dollars and annual revenues would be willing and able to accept electronic payments. Medical cannabis does not work that way. But it’s not because retail pharmacies are not willing or able. It is because federal and state laws conflict.
Cannabis and the CSA
What we refer to as medical cannabis is really just marijuana and marijuana-derived products used for medicinal purposes. And unfortunately for medical cannabis patients, marijuana is still illegal under the Controlled Substances Act (CSA).
Marijuana is listed on Schedule I of the CSA. That means it is considered under federal law to have no medical value but a high risk for addiction. From Washington’s perspective, marijuana is no different than heroin.
Lawmakers in more than three dozen states have a different opinion. They see some medical value in cannabis and products derived from it. Therefore, they have taken the steps to decriminalize marijuana within their own borders. This is how we have ended up with state-legal medical cannabis programs.
Banking Is Federally Regulated
The conflicts between federal and state law bring us back to the question of why medical cannabis is largely cash-and-carry. The answer lies in the fact that banking is federally regulated. Any banks or credit unions that choose to insure deposits under a federal insurance program voluntarily agree to be regulated by Washington.
That is fine, except for the fact that federal regulations prohibit banks from doing business with any entities or individuals engaged in illicit operations. Banks cannot offer checking accounts and debit cards to heroin dealers. They cannot provide small business loans to entrepreneurs looking to open their own meth labs.
Given that marijuana is a Schedule I controlled substance, banks cannot legally do business with cannabis companies either. Despite Congress prohibiting the DOJ from spending money on enforcing marijuana laws against states with active medical cannabis programs, banking regulators are still free to go after financial institutions that do business with cannabis companies.
The Risk Is Too High
In recent years we have seen a number of state-level financial institutions attempt to come up with creative ways to provide cannabis companies with banking services. But by and large, most banks and credit unions won’t go near the cannabis industry. The risk of federal interference is just too high.
Without a bank account, it is impossible for an entity like Brigham City Utah’s Beehive Farmacy to accept credit and debit card payments. They cannot accept personal checks either, because they have no way to cash or deposit those checks. That leaves them but one option: cash.
Cannabis companies deal in large amounts of cash that they somehow have to convert into assets they can deposit into bank accounts unrelated to their business operations. Either that or they need to conduct business with their partners based on cash.
A Sticky Situation
Not having access to banking services puts cannabis companies in a sticky situation. Congress has been working to rectify the situation but has failed thus far. So for now, cash-and-carry is the name of the game in medical cannabis. It is not an ideal situation but one that cannabis companies and consumers need to deal with.
