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In Los Angeles, the city council proposed creating the
nation's first-ever city-owned bank to, among other things,
serve cannabis businesses as a workaround to the problem.
Elected officials in Hawaii, meanwhile, mandated that the
state's eight licensed medical marijuana dispensaries go
Payments only one problem cannabis shops face cashless. The state is working with CanPay to support the

While the market for legal cannabis products is huge and growing, mandate, which took effect Oct. 1.
it's not an easy market to excel in. "There definitely is money to be FinCen creates narrow opening
made in the business, but nobody is making it easy for these guys,"
said QubeChain's Andie Kolb. CanPay is one in a small army of technology companies
developing payment solutions for legal cannabis
For starters, it takes significant time and money to deal with myriad, businesses. "We want to help licensed businesses to operate
sometimes disparate federal, state and local laws and regulations normally. And we want to make it safe for everyone," Eide
that control how cannabis businesses operate. Every state, for said.
example, has its own regulatory hierarchy, and many allow for local
regulation of cannabis dispensaries. Local zoning codes also have to Customers of participating dispensaries download an app
be considered, and zoning boards lobbied. from a CanPay website and set up accounts using their
checking account information. Once verified they are
Costly overhead is associated with protecting employees and able to log into the app whenever they enter a dispensary,
cash. And then there's the issue of taxes. Absent bank accounts, whereupon they receive a one-time payment PIN that's
cannabis businesses can't initiate employee withholding payments good for 30 minutes. Transactions are cleared through the
electronically as required by the Internal Revenue Service. That automated clearing house (ACH) system, Eide noted.
triggers a 10 percent IRS penalty for paying with cash.
CanPay originates ACH debits through financial
There's also a provision of the IRS Code (Section 280E) that limits institutions that adhere to a set of guidelines issued by
allowable deductions for businesses engaged in activities deemed the U.S. Department of Justice and the Financial Crimes
illegal under federal law, such as cannabis. Unlike other businesses Enforcement Network (FinCEN) in 2014. The guidelines,
that write off payroll expenses, supplies, employee benefits, etc., issued in response to growing conflict between state
when preparing tax returns, cannabis businesses only get to write and federal laws, provide a framework for banks and
off the cost of goods sold. Christie Stanley, a dispensary owner in credit unions to serve cannabis businesses and not run
Washington State, said that's a bigger issue for her than banking. afoul of regulators or federal money laundering laws.
"Congress needs to change the IRS code," she said. Requirements include heightened due diligence and risk
analyses, as well as Suspicious Activity Reports on all
cannabis-business transactions even those known not to
be attempts at money laundering.

"There's a lot of work that has to be done on the
Several members of Congress have introduced legislation compliance side," said Andie Kolb, Senior Vice President
to remove marijuana from the Schedule 1 list and/ for Business Development at QubeChain LLC. "It's just
or encourage state decriminalization efforts. Despite not [always] worth the added resources." She noted that it
bipartisan support, however, these measures have can be particularly difficult for large banks with interstate
languished, leaving states that have legalized or are in the operations to justify since legal problems related to
process of legalizing cannabis searching for workarounds. cannabis customers in one state could put at risk merchant
portfolios in other states.
"The clash between state and federal law threatens to
cripple legal California cannabis businesses before they There's also the risk of getting caught up in government
even get up and running," California State Treasurer John enforcement actions, like the now dormant Operation
Chiang, wrote in a report released in November 2017. Choke Point, which resulted in many banks cutting ties
The report, prompted by a ballot initiative legalizing with high-risk businesses, like gun dealers and cannabis
recreational sales of marijuana in California beginning in shops, Lindsay noted.
January 2018, described the situation as "an urgent public
policy issue." Relegating pot shops to cash-only businesses On top of ongoing compliance burdens, financial
makes them (and their employees) targets of violent crime institutions serving legal cannabis businesses also endure
and makes tax-collection more costly and labor intensive, rigorous and more frequent regulatory examinations,
the California report concluded. Eide said. "It's the traditional bank examination process
on steroids," he added. "They have to validate everything
they do."

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