Marijuana banking to be discussed in Santa Rosa

With a projected revenue of $6.64 billion but little to no access to bank accounts, California’s marijuana industry remains a cash-only economy.

State officials are grappling with how to funnel the industry’s money out of bags and into something more secure as California careens toward a recreational marijuana marketplace next year, when cannabis will be available for sale to adults without medical recommendations.

The obvious route would be a bank account, but that’s unlikely to be possible anytime soon, Deputy Treasurer Tim Schaefer said in an interview this week. Shaefer and California State Treasurer John Chiang are discussing banking and its alternatives for the cannabis industry at a 9 a.m. public meeting at the Glaser Center in downtown Santa Rosa.

“If you have those kinds of bags of currency rolling around the state, you can see why it’s so important to solve the banking problem,” Schaefer said.

The event is part of Chiang’s statewide “Cannabis Banking Working Group” first convened in December to get experts on banking and its alternatives together with players in the marijuana industry to discuss the issue in meetings throughout the state.

Today in Santa Rosa, representatives from Summit State Bank and Santa Rosa-based cannabis manufacturer CannaCraft will join experts on banking regulations, cash collection and payments systems.

A cash-only economy comes with risks, from safety concerns for employees handling large amounts of cash to staff time required to handle all aspects of the business involving money.

There are other risks.

When CannaCraft was raided by Santa Rosa police in July while the city’s rules on cannabis manufacturing were in flux, it was payday and the company had $500,000 in cash sorted into envelopes for staff. Police confiscated the money and still have it, even though the case has stalled and prosecutors have not charged any of the operators with a crime.

“It’s the most serious issue facing the industry,” said Kirk Anderson, CannaCraft’s chief operations officer. Anderson’s brother is Darius Anderson, a principal in Sonoma Media Investments, which owns The Press Democrat.

Anderson, who came to CannaCraft last year after a career in investment banking and private equity, said dealing in cash limits companies’ ability to engage in a transparent, regulated economy.

“If you wanted to know what somebody is doing with their money, the best thing you have them do is bank. Then you see where wires go, where checks go,” Anderson said. “If you deal in cash, there really is no way to do that. You go by someone’s word.”

Schaefer said it’s unlikely the state will be able to quickly remove the obstacles currently preventing banks from working with cannabis companies. He said while state officials push the Trump Administration to create avenues to banking for the marijuana industry, it must, in the meantime, focus on innovative workarounds to the banking system.

“The goal of this group is not to just get cannabis businesses bank accounts so they can pay their taxes - and that would be a good thing because we are the government and we want to collect your taxes - but it can’t stop there,” Schaefer said.

There is no law prohibiting a bank from opening an account with a marijuana business.

However, banks and credit unions avoid dealing with the industry because of the chance of being audited by the federal government, a time-intensive and costly process.

Banks are prohibited from working with entities engaged in money laundering or interstate drug trafficking, and they are required to file a “suspicious activity report” for large cash transactions and other clues the business may be involved with marijuana, which under federal law is still classified as an illegal controlled substance.

Suspicious activity reports rarely trigger investigations, but if the organization comes under suspicion of law enforcement, the reports become part of the investigation, according to Shaefer.

“We shouldn’t presume that the goal is a marijuana business gets a bank account and gets to keep it without any scrutiny,” Schaefer said. “The goal is to get them to places like a (cash) card club, a pawn shop, a check-cashing business. This is not unrealistic and it’s where we’re headed.”

You can reach Staff Writer Julie Johnson at 707-521-5220 or julie.johnson@pressdemocrat.com. On Twitter @jjpressdem.