Marijuana dispensaries struggle with banking access

FX 420’s business account is a safe tucked away in the back of the store. Robert Schuster, owner and president of the marijuana dispensary, relies on cash to pay his employees and for almost all of his personal expenses.

Because marijuana remains illegal under federal law, opening a business account in a federally insured bank is considered money laundering. That leaves cash as the only option for Schuster and other cannabis dispensary owners, which they say can be inefficient, inconvenient and make them targets.

“It’s all cash business, that’s the way it is,” Schuster said. “We’re under complete security. This place is under full lockdown at all times and it’s done with style and class.

“I pay my employees in cash every month because I cannot write a check. I would love to.”

Oregon voters approved the legalization of medical marijuana in 1998 and recreational marijuana in 2014, making it one of 10 states where both are legal. As for the federal government, it still considers marijuana a “Schedule 1” drug, on a par with heroin. Banks insured by the Federal Deposit Insurance Corporation are required to file Suspicious Activity Reports for anyone depositing funds “derived from illegal activity” and can be charged with money laundering.

“You adapt. I really want to pay my payroll in checks and I’d like to make my nightly deposit in a bank like anybody else would, but it’s just not legal yet,” Schuster said. “You accommodate yourself by getting more safes and doing everything legally and you don’t rock the boat. There’s rules to everything you have to follow.”

Cougar Cannabis owner Shellie Grammer pays an armored truck to take her money to Salem weekly to Maps Credit Union where she pays $500 to $1,000 a month to store it.

“It’s a bit of a hassle because the closest one is in Salem, so we’ve got to drive all the way to Salem to take care of banking,” Grammer said. “Nobody in Roseburg will touch it. I’ve been thrown out of almost every bank in town. Maps was my last and it’s hard to get a bank account there. Not just anybody in the business can apply and get a bank account.”

Grammer said she opened her account about two years ago but first had to put her name on a waiting list, take compliance officers on a walk through the store and prove she was in good standing with the Oregon Liquor Control Commission. In a Maps January update, it said is also requires criminal background checks and an ongoing compliance program. It estimates the credit union has one dedicated employee for every 40 cannabis-related business accounts.

Oregon House Bill 4094 was passed in 2016 to allow greater banking access for dispensaries and protection for the financial service providers, but only three credit unions in the state have an memorandum of understanding with the OLCC, according to spokesman Mark Pettinger.

“It allows us to share data from the Cannabis Tracking System with financial institutions that are banking with the cannabis and hemp industries,” Pettinger said. “It makes sure cannabis produced in our regulated system stays in the system. It tracks it from a grower all the way to retail.”

According to the tracking system, dispensaries statewide have made more than $50 million every month since March 2018.

Schuster said he is audited with the tracking system every night at 10 p.m.

Maps began serving cannabis businesses in February 2014 in accordance with the “Cole Memo” from then Deputy Attorney General James Cole and the memo’s accompanying FinCEN guidance from the U.S. Department of the Treasury. In June, Attorney General at the time, Jeff Sessions rescinded an Obama-era policy that seemed to assure banks they could do business with marijuana sellers complying with state laws.

“The FinCEN guidance is still in place and provides a strong compliance framework for the Credit Union to follow,” according to a Maps Credit Union press release. Board of Directors voted to serve cannabis businesses in 2014 to “enhance community safety in the Willamette Valley and to continue the Credit Union’s historical philosophy of community outreached and serving the underserved.”

As of January 2019, Maps has about 500 cannabis business accounts, including retail dispensaries, producers, processors, wholesalers and laboratories and received over $298 million in cash deposits, which is not stored in the credit union branches.

“The state government treats us like any other business, but federally, we are taxed on our gross, not our net, so we pay exorbitant taxes to the federal government,” Grammer said.

While marijuana businesses are illegal under federal law, they remain obligated to pay federal income tax on its taxable income, according to an Internal Revenue Service memo from 2014. They are also explicitly banned from claiming tax deductions on anything except the cost of goods sold. Oregon collects a 17 percent tax, and Roseburg collects a 3 percent tax on all marijuana sales.

“For a long time, I had to buy money orders to pay bills, and it was really difficult,” Grammer said. “Now that I have the bank account with Maps, it is a hassle to have the armored truck service, but I can pay my taxes electronically. Before I had an account with maps, to pay my federal taxes, I would have to buy 20 or 30 money orders and to pay my state taxes, I had to drive all the way to Portland with tens of thousands of dollars in a backpack.”

The business was registered with the Oregon Secretary of State in 2014. She spent much of the first few years looking for some way to store the business funds.

“I thought I would have opened up more dispensaries, but I won’t because of the hassles and the tax liability,” Grammer said. “If somebody is looking to get rich quick, opening up a dispensary is not the way to go. At the end of the year, you spend all your money paying your federal taxes.”