Cannabis Banking _ (Perhaps) There Is An App For That
[This article was originally published in Wendel's California Cannabis Law blog on January 20, 2017]
Simply stated, voter approval of Prop. 64 did not solve the California Cannabis Industry’s banking problem. It does not matter that cannabis – recreational or medicinal – is legal in California. In order to participate in the Federal Deposit Insurance Corporation (FDIC) program that insures all accounts, banks must comply with federal law. And, as we all know, marijuana is still deemed illegal under federal law.
The benefit of the FDIC program should not be underestimated. The FDIC sign, which is posted at every insured bank and savings association across the country, is a symbol of confidence for Americans in our banking system. It means that if the banks fail, most people (those with $250,000 or less in their accounts) will get all of their money back. Concerns about being shut out of the FDIC program or losing their charters have made banks reluctant to work with cannabis businesses (i.e., limiting the services provided to them), or more typically, disinterested altogether.
There have been limited exceptions to the banking industry’s general refusal to service cannabis operators. At least one Colorado-based bank, Safe Harbor Private Banking is attempting to work with cannabis businesses. It claims to have passed “state and federal examinations,” and boasts of offering the “only compliance based cannabis banking program of its kind.” Unfortunately, the bank’s website is short on actual details, so it is unclear whether this purported model is really the panacea for the cannabis industry’s banking woes.
For the time being then, many cannabis businesses are – and will likely remain – cash businesses. Having no checking accounts, this can be a serious problem – try keeping all of your money safe and paying all of your bills in cash. To address this significant issue, California’s State Treasurer, John Chiang, recently convened a working group to study the matter and make recommendations as to how banks may be able to work with California cannabis businesses. However, while the Treasurer conducts his studies (which still require some federal cooperation to be effective long term), what can a cannabis business do to manage its finances? Well, there might be an app for that, particularly with respect to customer transactions.
The Portland Business Journal recently reported that a Colorado-based company, CanPay, has launched an electronic payment app in Colorado, Washington and Oregon that aims to take the cash out of the marijuana industry. The customer pays for product at the dispensary by accessing the site on his/her mobile phone. Then CanPay generates a single use token or a QR code, which is presented to the retailer for payment, who pays the transaction fee.
CanPay is not alone in the mobile app payment space. Medical Cannabis Payment Solutions similarly claims to be a payment solution that complies with both state and federal laws. While it is focused on medical cannabis, we assume that their focus will ultimately include payment solutions for states where recreational use of cannabis has been legalized. Like Safe Harbor Private Banking, though, the website is short on details, prohibiting us from fully vetting this payment platform.
Yet another app-based payment product, PayQwick claims to go beyond the customer transaction and offer cannabis business banking account access. PayQwick is a federally registered Money Services Business, and it is licensed by the Washington State Department of Financial Institutions and the Oregon Division of Finance and Corporate Securities as a money transmitter. PayQwick advertises its ability to take cash out of the customer transaction process, allowing cannabis retailers to pay producers/processors for inventory electronically and pay bills via online bill-pay, providing armored car cash pick up services, and providing cannabis businesses the ability to pay (Washington State) excise taxes electronically. PayQwick’s capabilities are worth looking into as they may serve as a model for other states going forward.
In future blog posts, we will explore in more detail the various approaches that are being taken to address the banking issue confronting the cannabis industry. While our focus will remain on California, we nevertheless believe that industry players in other markets still may be able to provide insight into how the cannabis industry can shift from a cash-only operation model to a more traditional (and bankable) position.