The legal medical cannabis industry in the U.S. has grown exponentially over the last five years. In 2013 it was reported the revenues from sales of Medical (MMJ) and Recreational marijuana (MJ) was approximately $1.5 billion dollars. In 2014, it was $2.7 billion dollars. Estimated forecasts indicate that by 2020 annual revenues will range from a low of $35 billion dollars, to a high of $120 billion dollars, depending on the pace of state legalization.
Regardless of this enormous financial potential of the industry there are significant obstructions that must be addressed, or changed in order to sustain the current momentum and optimize the industry’s future performance. The MMJ/MJ industry is currently forced to transact their businesses on a cash basis. This is largely due to outdated federal drug and banking regulations. These regulations are currently being reviewed on the federal and state level and it is expected they will be changed soon to ease the financial transaction burden on this industry. There are two main reasons why conventional banks do not allow cannabis related business to open and utilize bank accounts:
1. Marijuana and cannabis related products are classified as Schedule 1 narcotics (for more information see reference # 2 in the Appendix). According to the Obama administration, the classification of Marijuana should be changed soon based on the legal medical use of Marijuana. Additional pressure to change the classification comes from over 20 states that have legalized the use of marijuana and there is a groundswell for change as additional states are engaged in legalization efforts. The federal classification changes are expected soon.
2. The second consideration has to do with business banking regulations relating to the Organized Crime Control Act of 1970 (RICO). The difficulty for banks is their requirement to comply with the related FinCEN rules and regulations. In a nutshell, when repetitive cash deposits are made at a bank, or if deposits exceed $10,000 per deposit, the deposit transaction detail must be reported to the FBI and the U.S. Department of Treasury. On February 14, 2014 FinCEN issued Guidance to Financial Institutions on marijuana business Clarification.
The FinCEN guidance provides that financial institutions can provide services to marijuana-related businesses in a manner consistent with their obligations to know their customers and to report possible criminal activity.
In states that have legal dispensaries those individuals of criminal inclination have two principal methods of “laundering” money:
1. Take in $10,000 of daily revenue and yet deposit $40,000 (or more) to the bank account. Meaning that the business illegally “laundered” the excess funds from illegal activities and used the dispensary account to legitimize the excess funds so deposited; and
2. Purchase only a part of the marijuana inventory from state licensed growers and the balance of the marijuana inventory from a non-licensed (illegal) grower. The dispensary pays a lower rate for inventory that may be inferior* product that sells at the same price of a certified license grown marijuana. The dispensary has lower inventory and a wider profit margin including cheating the state of a portion of its tax levy.
*Non-licensed – illegal growers don’t follow regulations, pay state taxes, and often deliver lower quality or potentially dangerous products.
The foregoing are the principal reasons banks continue to decline marijuana dispensary business. That means that after nearly a year into legal dispensaries the banks are still not capitalizing on this very profitable and growing industry. Fortunately for the Cannabis industry various companies are closing the gap in terms of compliance support systems. Today many companies deliver software and hardware that provide auditing and complete transaction records from seeds to sales. This allows agencies to follow marijuana seeds until they are delivered to a dispensary, through software and hardware technology. These products and services are important but do not resolve the banking requirements.
Greeniosk® is in essence a GRC Application Solution for the Cannabis Dispensaries. It is a combination of hardware and software. This Governance, Risk Management and Compliance application provides a complete audit trail beginning with the client purchasing the product through the deposit at the bank. The Governance segment ensures the proper tracking and reporting of payments by each client. The Risk Management segment ameliorates the process of dealing in a mostly cash business by reducing the cash handled by employees and by immediately depositing the cash into a kiosk that doubles as a cash safe. The Compliance segment produces daily, detailed reports on transactions to comply with banking deposit regulations and also produces reports to support revenues reported to state and federal agencies. It not only reports the amounts collected by the Greeniosk® but also reports the denomination of each bill used for payment. If required, images of each bill inserted in the Greeniosk can be stored in the Greeniosk® database for additional audit trail purposes.
Each transaction is processed through the secure Greeniosk® kiosk that accepts all denominations of bills and prints a secure encrypted bar code on a voucher for the client. The voucher is redeemed at the dispensing counter to purchase the products. The operation is simple and only requires the client to answer 3 qualifying questions (legal age for the transaction, valid state issued ID or driver license, and finally, in the majority of the states, if the client has a valid state issued medical marijuana card). After properly answering the 3 questions the client accepts the legal disclaimer and inserts money in the Greeniosk® bill acceptor. When the desired amount is inserted the client presses the print button and the Greeniosk® prints the voucher to take to the dispensing counter. The vouchers tendered by clients at the dispensary counter for merchandise will be retained to provide the final audit trail process. The client identification cards are then verified at the dispensary counter by the dispensary employees through the Greeniosk® ID scanner and database. When the voucher is redeemed all the information about each transaction is then merged and retained in the Greeniosk® database. It can then be available for the banking deposit substantiation and an accurate and complete audit trail of deposit funds.