Banking woes easing for some legal pot businesses
SALEM, Ore. (AP) — The legal pot industry has long been known for operating the old fashioned way — in cash.
The same is usually true when it comes time to pay Uncle Sam, especially in Colorado, Washington state and Oregon where the booming recreational marijuana market brings in big money to state coffers.
When Oregon began taxing recreational pot this year, it raked in $3.5 million in its first month — exceeding expectations for the entire year — and more than half came from pot dealers dropping off duffel bags, brief cases and shopping bags stuffed with anywhere from $7,000 to over $100,000 in cash.
Having that kind of money floating around is a big security risk. So the state Department of Revenue, using a nearly $4 million budget, has been beefing up its headquarters in Oregon's capital city of Salem. It transformed a small, unused office space into a high-security operation with bullet-proof payment windows, full-time police security and a new staff solely dedicated to carrying out a meticulous cash-counting process that ends with armored cars transporting the pot cash daily to the state's bank.
State government officials don't like talking much about this pot tax-collecting operation, for security reasons. It came to light only briefly in early February when a Department of Revenue official appeared before state lawmakers to request $2 million to expand the operation.
"Our first person came in with a bag — a Christmas bag," Jolene Swint told a committee of lawmakers.
Lawmakers were on the edge of their seats as they listened to Swint and other DOR officials that day explain the cash-counting process, step-by-step, which they likened to a bank.
"This might be more like a casino than a bank," said state Sen. Doug Whitsett.
Oregon's pot cash-collecting enterprise isn't the first of its kind. Colorado and Washington state put similar systems in place — security cameras, secure payment windows, cash-counting machines, etc. — when recreational sales taxes there began in 2014, and Alaska has similar plans for when its tax program rolls out next year.
But new data raises questions as to how much longer these efforts will be necessary.
Although weed is still at the top of the Drug Enforcement Administration's dangerous drug list, the number of banks and credit unions nationwide that are willing to handle pot money has increased more than four-fold in less than two years, from 51 in early 2014 to 260 last fall, according to the latest data from the U.S. Treasury Department's Financial Crimes Enforcement Network.
And unlike Oregon — Colorado officials declined specifics about cash payments, so the situation there is less clear — the overwhelming majority of pot business in Washington state pay taxes electronically.
It's facts like these, some experts say, that suggest the banking system isn't shutting out the marijuana industry as it once did.
"People don't call me anymore and say, 'I'm opening a new business and I can't find a bank account,'" said Robert McVay, a Seattle marijuana business attorney. "It doesn't really come up, at least with Washington clients."
Early on, only two credit unions serviced Washington's newly regulated industry — Seattle-based Salal and Spokane-based Numerica — but now several others have followed suit, and even big banks seem more tolerant of pot-related accounts, McVay said.
As for Oregon, he said, "I'm guessing it's just a matter of time. In Washington you saw Salal and Numerica do it for a little while and not get into trouble, and then you had a lot of the other ones step out and do the same thing."
Today marijuana is legal or decriminalized in some form in 35 states, and voters in Arizona, California, Nevada and four other states in the East could decide this November whether to legalize recreational use.
While Bank of America, Wells Fargo and other giants whose operations cross state borders are reticent about serving the pot industry, it's the state and community banks and credit unions that are stepping up, in large part because Colorado, Washington and Oregon have passed laws that protect them from state criminal liability.
Yet, the cash problem still exists nonetheless, and even as bankers warm up to the industry, many experts say it won't be enough if and when legalization hits California, where legalization could bring in as much as $1 billion a year in tax revenue, compared to $X and $X last year in Washington and Colorado, respectively.
Even if three-quarters of that money is paid electronically, as is the case in Washington, that still leaves about $250 million annually to be paid in hard cash, or nearly $21 million a month. The recent monthly cash figure in Washington, by contrast, is roughly $4 million.
Beau Whitney, an industry economist in Portland who also handles government affairs for a local dispensary, said California would certainly force reform, whether by federal action or banks taking it on themselves.
"I think some sanity has to be brought into this banking issue," Whitney said. "At some point in time, this is going to be an industry that's going to be too big to ignore."
Washington state, meanwhile, wants to eventually wipe away cash-handling entirely. Language tucked into a budget deal that state lawmakers reached late last month allows the Liquor and Cannabis Board, which collects most of the pot taxes, to require electronic-only payments, though it's not clear how soon that might happen.
"If people have the ability to pay electronically, we want to move in that direction," said board spokesman Brian Smith. "Some people sincerely have had difficulty getting bank accounts, but there are banks that are available to the industry, and we want to look at ways to get them to pay electronically. It's a public safety concern."
Oregon, on the other hand, appears to be headed in the opposite direction.
The existing cash drop off site in Salem — the only location for the entire state — was only meant to be temporary. The Department of Revenue is planning to build out a larger, more elaborate cash drop-off site on its main floor that'll handle larger cash volumes, which officials say is inevitable as the recreational industry grows and the banking situation still unpredictable.