Still a Cash Economy 

Banking becomes slightly easier to obtain, but cannabis companies still face many challenges.

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It seems inevitable that the federal government will do something to allow banks to do business with cannabis companies without fear of sanctions from regulators or law enforcement. The momentum is surely there, so it's only a question of when. For now, the uncertainty is still hampering what is a partially legal industry, and legislation might not happen until the Democrats are in charge of the whole government again. Because at the moment, Republicans are putting up roadblocks in the Senate.

Although legal for recreational use in 10 states including California, and for medical use in 24 others, pot is still a Schedule I narcotic under federal law. So banks are reluctant to do business with cannabis companies, not only crimping the industry's ability to conduct transactions like any other business, but leaving many companies vulnerable to criminals as they fill their stores with cash and haul paper bills around to pay suppliers and settle their tax obligations.

For many cannabis businesses, "it's nearly impossible to get a bank account," said Debby Goldsberry, CEO of Magnolia Wellness in Oakland.

The solution that would make the most sense — legalizing pot at the federal level or at least removing its Schedule I classification — has so far proved elusive. The latest effort seemed promising: the Secure And Fair Enforcement Banking Act passed overwhelmingly in the House Financial Services Committee in March, but now it's held up in the Senate because Republican Sen. Mike Crapo of Idaho, chairman of the Senate Banking Committee, reportedly said he "can't commit" to bringing it to a vote.

For now, banks are technically able to take on cannabis companies as customers, but they're forced to do so much paperwork to meet federal regulations that they either decline the business, or charge hefty fees.

Goldsberry is one of the lucky ones — for now at least. She has a bank account for Magnolia, although she declined to identify which bank she works with. It wasn't always so. Just a couple of years ago, Magnolia was an all-cash business, treating paper money like a "hot potato," Goldsberry said. "As soon as it came in, it had to go out."

More dispensaries and other "plant-touching" businesses are finding solutions. Some credit unions, for example, are taking on cannabis companies. But there are often limited slots for each, due to the costs of compliance. And some companies like Dama Financial in South San Francisco offer payment services along with security for cash businesses that allow businesses to pay their bills. But again, that's an extra cost that the government could eliminate just by passing a law.

Still, the situation is much better than it was just a year or two ago. "The sky isn't falling," said Shareef El-Sissi, head of business development for The Garden of Eden dispensary in Hayward and co-founder of Treez, which makes a software platform for dispensary operators. There is, El-Sissi said, "a clear path to banking" on the horizon.

That's an optimistic take, given that El-Sissi and two of his fellow executives recently had their personal bank accounts canceled because their income came from the cannabis business. But El-Sissi says cultivators and distributors are having a harder time now than dispensaries are. "There is still a ways to go," he said.

One perennially proposed solution is the creation of one or more public banks, managed either by the state or by local governments. Such banks are common in some European countries, but there is only one operating in the United States — in North Dakota. The California government studied the issue recently, but that effort hasn't gone anywhere. The city of Oakland last year conducted a feasibility study that concluded such a bank would work, but that proposal, too, is in limbo. Although cannabis legalization has brought new attention to the creation of a public bank, the main impetus for it is actually to get governments to disinvest from private banks, said Susan Harmon of Public Bank East Bay, an advocacy group. The effort might include cannabis down the road, she said, but for now, the same fears that prevent private banks from getting more involved also bear on people planning for a public bank: "Cannabis is illegal, you still have to be FDIC-insured, and you still need federal approval," Harmon noted. To get a public bank started "is going to be hard enough without bringing cannabis into it."

El-Sissi concurs. "I want traditional banking, and nothing less than that," he said.

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