Marijuana became legal in Illinois on January 1, yet licensed cannabis dispensaries are generally forced to operate like their street-corner, black-market counterparts in at least one respect: They are cash-only businesses because they have no access to banking services.
That’s because federal law still classifies marijuana as a Schedule 1 drug, and classifies marijuana businesses as illegal. And since banking is regulated by federal law, banks technically could be subject to charges like aiding and abetting, or money laundering, should they make loans, provide credit or otherwise service these businesses.
A small number of banks, often local credit unions, have been willing to use a loophole that allows them to serve dispensaries but requires them to file “suspicious activity” reports every time these businesses make a transaction—and they tend to charge fees to offset the risk and additional work involved. But most banks have “just said no” because they considered the risk and hassle involved to steep a price to pay.
Operating cash-only presents a number of challenges for dispensaries. They cannot open basic payroll, checking and credit accounts. They are unable to accept credit cards from customers, nor can they set up automatic payments to vendors. They must compensate employees in cash, which make them potential targets for crime, and they have to hand-deliver cash to government offices at tax time—necessitating time for travel, plus armored, guarded vehicles. This also creates an additional expense.
In 2013 the Justice Department adopted a new policy known as the Cole memo outline how the feds would enforce federal laws in states that have legalized non-medical cannabis. The Cole Memo winks at the federal laws and tolerates commercial distribution of cannabis except in certain circumstances – when guns are involved or a criminal enterprise is distribution the pot. But 2018 the Cole memo was rescinded by Attorney General Jeff Sessions and instructed federal prosecutors to enforce federal laws regarding cannabis in those states which have legalized cannabis. To make it more confusing, in June 2018 President Trump stated that he would “probably” support the STATES Act, a bipartisan bill which would effectively end the federal prohibition on marijuana and leave the issue up to the states. But the STATES Act remains pending as it has been stalled in the Senate.
A change in federal law could be in the offing, although it still faces hurdles. Introduced in March 2019, the Secure and Fair Enforcement (SAFE) Banking Act would clear the way for federally regulated banks to do business with state-approved cannabis businesses without fear of reprisal. With cannabis legal at least for medical use in 33 states, the House of Representatives passed the SAFE Banking Act by a lopsided 321 to 103 vote.
But that legislation has become stalled in the Senate due to the opposition of Mike Crapo, R-Idaho, who initially seemed open to the idea, saying, “The impact on the ability of small and large businesses to operate justifies our attention,” although he thought the Senate might craft its own bill on the topic.
More recently, however, Crapo said the SAFE Banking Act did not address concerns related to marijuana consumption more broadly, such as high potency levels, marketing to children and research on the drug’s effects. He also cited “the need to prevent bad actors and cartels from using the banks to disguise ill-gotten cash to launder money into the financial system.”
Crapo added that if those concerns were adequately addressed, he could be open to just saying yes.
Recreational cannabis distributors have a fine lien to walk in their business between state laws and federal laws which still prohibit the sale and distribution of cannabis.