New York state officials, including the governor, have gone on the record saying cash-only businesses are a public safety problem.
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Yet another state is trying to find a way around the problem of banks refusing to do business with cannabis companies because the federal government still lists marijuana as a Schedule I illegal drug. Most banks will not consider working with a cannabis company for fear of running afoul of Department of Treasury regulations.
That leaves cannabis businesses still working in a cash-only world. That raises many challenges. There’s the security issue around dealing with a lot of cash. Also, it makes tracking sales and calculating an accurate tax payment more difficult for governments.
Some members of Congress have talked about changes, but nothing has yet happened. California is considering creating a state-run bank that will deal with marijuana businesses. Now, New York is taking a direct approach. State leaders are urging state-chartered banks to simply start offering services to cannabis companies.
“New York Must Act”
In a recently released document, the New York Department of Financial Services (DFS) provided guidance to state-chartered banks on providing services for the cannabis industry. That guidance was straightforward: the department is urging banks to work with the medical cannabis industry.
In New York, only medical marijuana is legal.
The memo paints a stark picture of what it is like dealing in a cash-only business. It mentions that the department has learned marijuana entrepreneurs are forced to:
- Pay employees with envelopes stuffed with cash
- Carry around bags containing “thousands of dollars to purchase money orders”
- Open bank accounts through holding companies or personal bank accounts
The memo calls the situation a “public safety issue, as cash intensive businesses and their suppliers, employees and customers become targets for criminals.” They also note how cash impedes the tracking of funds for tax purposes, adding: “None of this is necessary. Positions taken by the federal government are only exacerbating these problems, rather than remedying them. New York must act.”
The Governor Backs the Plan
To further support banks in providing these services, New York Gov. Andrew Cuomo also publicly supported the guidance, which he directed the department to release. In a press release, Cuomo said that state officials in New York back the medical marijuana industry and acknowledge the benefits of patients using cannabis in certain situations.
Cuomo also accused the federal government of continuing to “sow discord surrounding the medical marijuana and industrial hemp businesses.”
On a more practical level, the DFS guidance assured banks that the state would not impose sanctions or penalties on any bank doing business with the medical marijuana industry if the bank complies with certain issues.
Interestingly, those include the provisions of the Cole Memo issued by the federal Department of Justice during the Obama Administration in 2013. That memo, which safeguarded states that legalize marijuana from federal interference, was rescinded by Attorney General Jeff Sessions earlier this year.
Until federal law changes, marijuana businesses will have to wait and see which, if any, of the current state plans leads to banks offering them financial services.
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