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Monday, December 10, 2012

How Will Local Cannabis Businesses Manage Their Banking?

Posted by on Mon, Dec 10, 2012 at 2:36 PM

A worthwhile Planet Money episode from last week dealt with the trouble cannabis businesses, now legal in Washington and Colorado, are having/going to have with their banking.

Bank managers are worried about how the feds plan to deal with these new state-legal but federal-illegal assets. So the now-legitimate pot businesses are still having to operate as cash-only enterprises and figure out creative ways to legally launder their money and get it into banks. Fifty thousand bucks on your statement is one thing—fifty thousand bucks in cash is a liability. Over on the Planet Money blog, they've posted some methods that cash-only businesses use to manage their money:

1. Buy three safes. One for "bulk product," one for "inventoried, ready-for-sale product," and one for cash. "If you put your cash in with the cannabis, it will end up smelling like cannabis, and when you go down to the bank, I guarantee you're going to have a talk with the manager of that bank."

2. Get an ATM — and be prepared to stock it with cash yourself. Credit card companies may not want to do business with you. Same goes for the companies that run ATMs in small businesses. "The companies that traditionally maintain ATMs will not stock your cash," Davis says. "Why? Because it's possible that the federal government will come, break down the door and take that cash."

3. Find angel investors. No bank is going to give you a loan to start a weed shop, even if it's legal.

4. Create a shell company. Banks don't want to do business with weed shops. But they don't mind opening accounts for legal corporations whose business dealings are vague. "I had to be colorful with the way that I opened my account," Davis said. "I don't feel great about having to toy with the truth, but it's essential for me to have banking. I'm a business."

I wonder how these bankless businesses plan to stay in the good graces of the IRS.

 

Comments (27) RSS

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Will in Seattle 1
Best method is shell companies like Komrade Rmoney uses to hide his overseas tax-avoiding.

Keep deposits and payments below $10,000.

Credit union accounts or state-chartered banks have to accept your money, if you have a state business license.

Avoid the big banks. Most of the money they get is drug profits being laundered anyway, you don't want to subsidize the cartels.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on December 10, 2012 at 2:41 PM · Report this
TacomaRoma 2
The IRS doesn't give a fuck, as long as you pay your taxes on your income. In fact, they won't share information with other government branches aside from whether you paid taxes or not.

Pay your taxes.
Posted by TacomaRoma on December 10, 2012 at 2:57 PM · Report this
thene 3
As a general rule the IRS don't care how you make your money so long as a) you report it accurately, and b) you don't engage in self-incrimination. I'm sure that weed sellers will, like sex workers (I mean, 'escorts' and 'dancers'), develop a vocab of legally sanctioned euphemisms to label what business they conduct. I'd figure simply filing as a 'retail store' without saying what you sell wouldn't be a problem. (The IRS seriously don't engage in much law enforcement - I mean, they know the home addresses of all the ITIN filers who aren't in the USA legally but are paying their taxes like the rest of us, and they don't rat all those people out to the DHS.)
Posted by thene http://thene.dreamwidth.org on December 10, 2012 at 2:59 PM · Report this
4
@2 That's what I am wondering: aren't there state-level banks? Or are they all national now. Or am I just dumb for wondering that and it doesn't make any difference.

And if there is nearly as much money in this new industry as thought, won't some big banks be willing to devote the lawyer-hours to get in on that? It seems crazy that tobacco will send their doctors and lawyers to lobby anyone anywhere but big businesses are going to roll over and let little cash-only shops take the whole industry.
Posted by ChrisJP on December 10, 2012 at 2:59 PM · Report this
thene 5
sorry, #2, you beat me to it!
Posted by thene http://thene.dreamwidth.org on December 10, 2012 at 2:59 PM · Report this
6
Whoops I meant @1. But now that I read @2 that makes sense too.
Posted by ChrisJP on December 10, 2012 at 3:00 PM · Report this
PTrig 8
They all need to watch The Wire and pay careful attention to Stringer Bell.
Posted by PTrig on December 10, 2012 at 3:13 PM · Report this
9
@1: Wasn't this covered a while back? Any FDIC-insured bank or credit union (see this little gem from NPR involving, definitely a WA only institution saying "NOPE!") is still scared of federal regulations being a problem if they handle or loan money that's based on the pot.

But who knows? Maybe your "you have to accept my money!" argument will carry the day.
Posted by thename on December 10, 2012 at 3:14 PM · Report this
10
Of course I posted--like it seems @1 may have done--without listening to the linked story.

/facepalm
Posted by thename on December 10, 2012 at 3:16 PM · Report this
11
FDIC, son. Your local, Washington-only credit union bank account is subject to federal regulations.

Planet Money is awesome.
Posted by six shooter on December 10, 2012 at 3:17 PM · Report this
NotSean 12
Speaking of federal interloping via FDIC...

...I expect (50/50) that the feds will place 'anti-legal-pot' stipulations for future federal funding of various projects, like highways, bridges, tunnels, policing, poverty...

Watch for it.

Posted by NotSean on December 10, 2012 at 3:26 PM · Report this
keshmeshi 13
@4,

I'm sure there are banks that solely have branches within a given state, but all banks are federally regulated, which makes sense given that financial transactions are national and global in scope.
Posted by keshmeshi on December 10, 2012 at 3:28 PM · Report this
14
@11: It's a detail, but the FDIC doesn't have anything to do with credit unions. The credit unions are insured through the NCUA. Still the Feds... but a different agency.
Posted by pheeeew!crack!boom! on December 10, 2012 at 3:28 PM · Report this
Will in Seattle 15
Main things are:

1. pay your taxes.

2. follow the state law.

3. remember most small firms are really DBA (doing business as), and tend to have different "names". This is common business practice.

What @14 said. But there technically is a difference between a state chartered bank and a federal chartered bank. I've owned shares in both.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on December 10, 2012 at 3:55 PM · Report this
Original Andrew 16
Weeds already solved this problem. Buy a ton of muffins and coffee from Costco and open up a "Fakery." You have a legitmate business* and can readily explain why you're depositing $50K a week.

*My understanding is that the new MJ stores can't operate as coffee houses, so just lease the space next door.
Posted by Original Andrew on December 10, 2012 at 3:59 PM · Report this
17
How do the medical people solve this problem? From what I understand, their lawyers tell them not to pay taxes.

And, by the way... if I buy weed for my illness, I shouldn't pay sales tax because it's medicine. If I buy weed for my recreation, I should. Can the medical people create some kind of OTS weed so I can buy it without a prescription but save myself 9%? (oh, and deduct it from my Federal Income tax as a legitimate health-care expense?!)
Posted by six shooter on December 10, 2012 at 4:06 PM · Report this
18
Oh, and can someone please create a weed vending machine so I can buy 1 weed and 1 lighter before i go to a concert?

If you place the machine in a bar, you shouldn't have to check IDs before your sale.
Posted by six shooter on December 10, 2012 at 4:08 PM · Report this
20
@2 Exactly. If you're legal you have a license so your name, address, etc are already recorded. The Feds are more likely to subpoena state records then troll tax returns.
Posted by giffy on December 10, 2012 at 4:13 PM · Report this
internet_jen 21
Is there anyway to make the loan shark model contractually legal? Is that the closest to a bank the industry can get while still be threatened by FED seizure? Though, it'd need to be scaled up to support business as opposed to individual degenerate gamblers. (basing this on stuff I've learned from TV)
Posted by internet_jen on December 10, 2012 at 4:25 PM · Report this
Sir Vic 22
I would talk to the local tribes with the big casinos. They might be ideally positioned to help.
Posted by Sir Vic on December 10, 2012 at 4:50 PM · Report this
23
@21 -- Maybe the people who run Las Vegas and Atlantic City will invest. I bet they know some pretty good loan shark skills.

(I like TV too. AND long walks on the beach.)
Posted by six shooter on December 10, 2012 at 5:06 PM · Report this
24
Not to rain on everyone's big $$$ weed parade, but I think long term, you're doing the economics wrong. From an agricultural standpoint, producing mediocre weed isn't any more expensive than producing asparagus or artichokes. If it was totally unregulated, and any farmer could grow and sell it, the price would be similar, too. You know, like $5 a pound.

Mind you, I'm not in favor of that. What I am in favor of, however, is the state making most of the money from the trade. The retail price, including the state's cut, should be set at whatever level will drive the criminal cartels out of business, but no lower. I'd actually like to see about 90% of the price being state revenue. (The state's cut of lottery sales is even higher, and there's no dearth of vendors willing to sell those.)
Posted by Brooklyn Reader on December 10, 2012 at 5:10 PM · Report this
25
@24 -- I'm with you. Let's make Washington dependent on Marijuana Money.
Posted by six shooter on December 10, 2012 at 5:36 PM · Report this
Will in Seattle 26
@22 one bizarre question is can casinos on tribal lands sell MJ without state MJ taxes?

I don't know the answer to that one. I'm just wondering.
Posted by Will in Seattle http://www.facebook.com/WillSeattle on December 10, 2012 at 5:42 PM · Report this
27

Did you hear that guy?
You got to listen to him.
You'll learn something.


http://www.anyclip.com/movies/scarface/t…
Posted by Supreme Ruler Of The Universe http://_ on December 10, 2012 at 8:03 PM · Report this
mayor 29
Bitcoin.
Posted by mayor on December 10, 2012 at 11:20 PM · Report this
30
Federal illegality would also be a strong incentive against a business' being able to use some valuable amount of marijuana as security for a loan---and any small business that deals in goods can end up needing to use the goods for that purpose (to maintain liquidity when sales are down, leading to increased stocks if you're not perfectly Just-in-Timed).
Posted by Gerald Fnord on December 11, 2012 at 11:42 AM · Report this

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