Could Ohio Solve the Cannabis Industry’s Cash-Only Problem?

By Omar Sacirbey

Could Ohio wean the marijuana industry from its need to do business in cash?

Ohios new medical marijuana law proposes a closed-loop payment processing system. It would be similar to pre-paid debit or gift cards. Regulators must still decide whether to use the system.

The proposal comes at a time when legal marijuana companies have had to rely on cash-only transactions. Thats because most banks, credit unions and credit card companies are reluctant to do business with them, given the uncertain federal regulatory environment.

That conundrum has forced marijuana businesses to use cash to pay employees, buy lighting and other equipment, or pay taxes. Moreover, MJ business owners dont have a safe place to keep all that cash, endangering employees and customers.

But could Ohios proposed closed-loop system solve such issues? Opinions are divided and several industry officials are skeptical especially given that a small but growing number of financial institutions are serving MJ customers.

Still, some industry observersreckon the systemcould work. At the least, it could be a useful stopgap measure in new MMJ markets, such as Ohio or Pennsylvania, where banks are unaccustomed to cannabis businesses.

Its not completely out there. At the same time, you also have private businesses in states like Washington and Arizona who are offering different types of payment systems and stored-payment methods, Robert McVay, an attorney with the law firm Harris Moure in Seattle, said.

How Ohios Closed-Loop System Would Work

Under Ohios proposed system, MMJ patients and registered caregivers would put money in special accounts, using checks, credit cards, or cash at a state-licensed liquor store or a state agency. The money in the accounts could be used for dispensary purchases.

Dispensaries, cultivators, and other marijuana businesses also would have accounts they could tap to buy products and pay bills. If a marijuana business needed to make a payment outside of the closed-loop system, the state would cut a check for the payee.

The Financial Crimes Enforcement Network would have access to every transaction should the U.S. Treasury agency decide toinvestigate.

The Ohio Department of Commerce which is in charge of establishing the MMJ programs payment system hasnt yet made a decision about the closed-loop plan.

We are just beginning the process to set up Ohios Medical Marijuana Control Program, and no decisions around a closed-loop payment system have been made at this time, Kerry Francis, a spokeswoman for the Ohio Department of Commerce, said. Also, there havent been any decisions around banking regulations.

Critics Weigh In

Critics of a state-run closed-loop system like the Ohio plan argue it wouldnt shield banks from federal interference.

It is possible that a mandatory closed-loop system could be established and banks would stillprefer not to service the marijuana industry to cash checks from the state system, said Tom Haren, an attorney with Ohio-based Seeley, Savidge, Ebert & Gourash.

At the same time, in more established marijuana markets such asColorado and Washington, a growing number of marijuana businesses are finding banks to work with them. Observers say traditional banking is the better route, certainly for the long-term.

As long as the state financial regulator is on board with the institutions accepting marijuana dollars, a lot of smaller banks and credit unions are willing to roll the dice with federal law in the same way that marijuana businesses are rolling the dice with federal law, McVay, the Seattle attorney, said.The banking problem exists mainly in states that are newer to the industry.

In fact, the number of banks willing to do business with marijuana companies is growing. As of March, 301 banks in the United States had marijuana-touching clients, up from 51 in March 2014,according to federal data.

Despite that growth, banks can still face federal scrutiny if theyre not careful. Earlier this year,a ...