Cash registers at the state’s marijuana shops have been busy since recreational sales started a month ago but most of the money changing hands is cash.
Marijuana companies are shut out of the banking system, unable to use simple things like checking accounts or credit card processing. And that’s causing a lot of stress for the industry.
Andy Telsey is a perfect example of the difficulties of an all-cash industry. Telsey used to be part owner of a dispensary but when he wanted out of the business, his partners presented him with a shopping bag of cash instead of a check.
“It wasn’t in a suitcase like you see on TV... with $100 bills wrapped up nicely,” Telsey, a securities attorney by trade, says. “These were $5s, $10s and $20s. Even singles.”
Telsey says the shop’s bank account had been shut down because an employee had previously tried to deposit money that reeked of marijuana.
Because marijuana is against federal law, and most banks are federally insured, they refuse to deal with dispensaries.
The Justice Department said last week it would soften its opposition to pot bank accounts, but many see that as a half measure. There is a bill in Congress, proposed by Colorado representative Ed Perlmutter, to allow banking but that seems to be stalled.
The result has left marijuana businesses struggling.
Denver dispensary owner Jamie Lewis has had to opened seven different bank accounts for her business in last few years.
“Setting up accounts then having them for up to 30 to 60 days, then having to shut them down is almost a tease,” Lewis says.
On one account, Lewis was shut down after her monthly electric bill raised flags at the bank: it was $30,000.
Lewis’ business decided to finally “rip the bandaid off,” as she puts it, and go all-cash. That’s not easy when taxes can run as high as $60,000 in a good month. She imagines this is probably what doing business was in the 19th century, before checking accounts became widespread.
“I have to physically see you in order to pay you,” Lewis says. “That’s prehistoric.”
It’s also dangerous: Many of Colorado’s more than 500 dispensaries are dealing only in cash. Some hire private security, others vary travel times and routes as they move money around, and some owners say they carry guns. Many are too nervous to say anything publicly about their financial situation.
Map of recreational marijuana stores open in Colorado Map created by CPR with data from Marillow
“We’re fortunate that nothing really bad has happened, but it’s just a matter of time,” Lewis says.
It requires a lot of trust from owners to let their employees move these large sums of cash around.
“It is concerning when you go to turn to someone to make a payment: do I want to give you $13,000 to drive across town with?” Elliot Klug, owner of the Pink House dispensary chain, says.
Klug has one small checking account left, which he uses for part of his payroll, but if recreational sales end up being as lucrative as he’s hoping, it could bring bigger problems.
“Scale starts to crush you,” Klug says. “You can hide at a smaller size, but once you get bigger, there’s nobody that’s going to look the other way.”
Some dispensaries CPR interviewed say they funnel the money into bank accounts through holding companies to mask the origin.
This endless search for a safe way to pay the bills may be leading some business owners into bank fraud, according to marijuana attorney Sean McAllister.
“They’re being forced to be in positions that might look shady from the outside,” McAllister says. “But it’s because of this lack of banking in the industry. And I think that’s a serious concern for the entire industry.”
McAllister wants to see action at the federal level to fix the problem.
But until that happens, investors like Andy Telsey will stay out of the marijuana business until banks open accounts again.
“I’m hoping that somebody doesn’t have to get hurt in order for somebody to actually do something,” Telsey says.
The word that these dispensaries are cash businesses is already out: Armed robbers hit stores in Boulder, Denver and Longmont last year.