In my state’s recent midterm primary elections, I voted for the referendum on legalizing recreational marijuana.

It reminded me of recent conversations I’ve had with payments professionals trying to tackle the issue of providing safe and secure financial services to marijuana-based businesses:

• One CEO said they have put serious effort into this market. They’ve worked with various payments partners to construct a legitimate way to service this line of business, so that when (if) the current government finally supports the Cole Memorandum, they have a solution ready to go. (We’ll talk about that Cole Memo in just a moment)
• Another provider saw competitors meeting the needs of this business with legitimate but not mainstream solutions and was struggling to see how they too might meet the needs of their business customers, but within their existing payments model
• A payments lawyer is busy helping companies understand the legal issues in the conflict between federal and state laws

All are solving for the same problem — the majority of marijuana sales are conducted with cash. About $7 billion worth.

According to ArcView Group and reported in Business Insider March 2017, “Sales of legal weed in North America rose by 34% to $6.9 billion in 2016 and is expected to reach $22.6 billion in 2021.”

Think about this situation. A business owner grows and sells marijuana. She also creates a concentrate used for medical purposes. On a typical business day she leaves her business with a bag (suitcase, duffle bag) of some $5,000.00 in cash to pay for the raw materials needed to make the concentrate. On the way, she stops to collect payment from a dispensary customer to collect $3,000.00 in cash. Now, she’s literally driving around with wads of cash. Not checks and not card receipts. Cash.

Seriously, in 2018 we have legitimate businesses that cannot conduct safe, secure financial transactions? A business that hauls around piles of paper bills in a satchel like it was in the days of Al Capone and Prohibition?

States vs. The Feds

Let’s review the inherent conflict that is preventing the payments industry from broadly supporting the legalized marijuana industry.

First, marijuana is legal in 29 states and the D.C. for medical use and 9 states and the D.C. for recreational use.

The conflict is this. While states have begun to legalize the production, sale and use of recreational marijuana, the federal government has not, retaining marijuana as an illegal Schedule 1 substance. Which means it is still a federal crime to produce and sell marijuana.

However, in 2013, the Cole Memo, issued by then Attorney General James Cole, provided guidelines for states to follow to ensure that the federal government would not prosecute or interfere with “cannabis-related activities”.

Jeff Sessions, current U.S. Attorney General, has been an opponent of legalization and created ambiguity around this administration’s support of the Cole Memo.

Additionally, as reported by Digital Transactions in February 2018, a group of senators (18 that come from states that have legalized marijuana) asked the Appropriations Committee to “alleviate the turbulence the Attorney General’s abrupt decision has caused” and that it help “preserve the strong regulatory frameworks the states have created” regarding the sale and oversight of legal marijuana”.

Visa and Mastercard rules adhere to federal law so any transaction riding their rails related to marijuana is prohibited. That leaves the national and state-chartered banks and credit unions to determine how they might support business customers involved in the production or sale of marijuana.

Business Accounts but Not Cards

A handful of financial institutions in a subset of states are providing legitimate solutions to their business customers (dispensary operators/growers), such as Partner Colorado Credit Union’s Safe Harbor Private Banking entity, Champion Bank in suburban Denver, and Maps Credit Union in Oregon to name just a few. From my cursory review, these financial institutions monitor marijuana accounts extraordinarily closely after a high level of scrutiny before signing them up. These financial institutions also anticipate and comply with oversight reviews from FinCen and other banking regulators.

So, as more states move to legalize medical and recreational marijuana, the payments industry will be motivated to provide solutions that minimize the use of cash, develop a safe and secure transaction environment, and monetize an industry poised to grow to $22 billion by 2021 and $24 billion by 2025 according to market research firm New Frontier Data. Either way, it’s a CAGR of over 15%.

What industry can give you that kind of growth?

What are your thoughts on card acceptance at marijuana enterprises? Does it happen in 2018 or 2020?