High Time for Cannabis to go Cashless
- Charlie Wilson
As Congress and the White House work on a tax bill that will reduce revenues going to states, they are simultaneously impeding the growth of an industry that is set to add billions to state tax revenues: legal cannabis.
Under the guise of protecting public health and safety, federal policy is jeopardizing this sector despite its widespread popularity. Nowhere is this clearer than in federal banking policy, which deters federally chartered banks from working with cannabis companies.
Twenty-nine states and the District of Columbia have legalized cannabis for medical purposes, and eight states have done so for recreational use. More than 200 million Americans — more than 60 percent of the U.S. population — may now use marijuana medicinally or recreationally under state laws. With over 32 million yearly users and close to 9 million daily users, cannabis generates more than $6 billion in U.S. sales and is poised to become a $20 billion market by 2021, according to a recent Cowen and Company report.
Yet federal banking policy does not exempt banks from cannabis’s designation as a Schedule I illegal drug under the federal Controlled Substances Act. That means almost all of that $6 billion is transacted in cold, hard cash because the largest banks and credit and debit card networks refuse to work with cannabis businesses.
This stance undermines state regulations and threatens not just billions in state tax revenues but consumer safety and law enforcement efforts. Simply put, cannabis markets must be safe, transparent and efficient to operate successfully. But all-cash businesses jeopardize each of those goals.
First, an all-cash segment makes the market less safe. Safety is a real issue given the amount of money moving through these retail locations, which reaches upwards of $2 million monthly in some stores. Cash creates temptation for employee theft, robberies or unauthorized discounts, compelling stores to invest in even greater security, which states already require at great expense.
Further, without access to even basic business checking accounts, cannabis retailers are forced to find secure facilities for proceeds and secure transport for the money. At tax time, some dispensaries actually drive cash to tax agencies — in certain cases as far as 300 miles away — to make payments. It is no surprise that the California State Treasurer’s Office recently concluded that the state should sponsor armored car services to pick up tax revenue from dispensaries.
Second, a cash-only environment leads to less transparency for states and the federal government. States impose extensive reporting requirements on dispensaries, yet a cash economy makes monitoring transactional activity more difficult. Cash is anonymous. With electronic payments, each transaction can be uniquely identified down to the sales associate, time of sale, products sold, amount received, and identity of the purchaser. When cash is king, less data is reported, including for federal anti-terrorism and diversion efforts.
Third, cash-only hurts purchaser convenience and store efficiencies, potentially slowing growth. Whether you want to look at this from the private-sector side (many market participants are small businesses bringing investments and jobs to communities of every demographic) or the public-sector side (the substantial tax revenues these businesses bring resulting in either greater services or lower overall tax burdens for the average person), these inefficiencies have substantial, adverse effects.
To be sure, tech companies are stepping in to help growers, distributors and retailers meet these challenges, but all-cash transactions make the work of dispensaries — and the government — much harder.
Although the latest Gallup poll suggests 64 percent of Americans — and majorities in both major political parties — now support legalization, no one believes Congress and the Trump administration will legalize cannabis any time soon.
But the federal government could at least relax restrictions to enable federally chartered financial institutions and credit and debit card issuers to begin working with companies that comply with state laws. This would spur the industry to become cashless, a development that would greatly assist regulators.
There is overwhelming evidence that electronic transactions are more secure, faster and more transparent than dealing only in cash. Yet this highly regulated industry is more difficult to monitor precisely because it is all cash. And oversight will only become more difficult with continued rapid growth and as more states legalize cannabis.
The federal government’s aversion to cannabis threatens public safety and endangers the rigorous rules that states have already imposed on businesses. If cannabis can become a cashless market, consumers, patients, businesses, and regulators will all benefit.
Article and image(s) from: The Hill