banking Archives - Green Market Report

Debra BorchardtDebra BorchardtFebruary 6, 2018
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9min16990

Treasury Secretary Steve Mnuchin testified during an appearance before House Financial Services Committee about the Financial Stability Oversight Council’s (FSOC) annual report. During his testimony, he addressed cannabis and banking saying, “We do want to find a solution to make sure that businesses that have large access to cash have a way to get them into a depository institution for it to be safe.”

He also said, “We are reviewing it with the intent not to take it down without a replacement.”
A copy of the clip can be watched here.

Robert Fireman, CEO of MariMed Inc, (MRMD) a firm which has established cannabis cultivation and dispensary facilities in 6 states and distributes branded precision dosed products in numerous states, voiced his support for government efforts to enable the cannabis industry to use traditional banking:

“Banks play a major role in all business.  Marijuana is classified as a Schedule I drug under the federal drug control regulations has been a barrier for most banks to provide needed financial services to the cannabis industry.  In many states, cannabis businesses cannot obtain banking accounts to make deposits or issue checks and wires for payables.  Most banks refuse to provide even secured loans to own and develop cannabis facilities.   Banks who have mortgages on commercial and industrial buildings consider it a default if these business owners lease any part of property to cannabis business.  Currently, having to deal with lots of cash presents security issues that other businesses do not have.  Conventional banking will be a great benefit to this emerging cannabis industry as it tries to become more mainstream in the 29 states that now have some form of legal cannabis.”

Here are some additional reactions from marijuana industry entrepreneurs and leaders

Wil Ralston, President of SinglePoint (SING): “This is a great step in the direction of enabling cannabis-based businesses to access to traditional banking. We believe this further legitimizes the industry and again shows the need for a solution in a heavy cash-based business.”

Bryan Meltzer, Partner at Feuerstein Kulick LLP: “Although far from concrete, Secretary Mnuchin’s testimony today was encouraging because he appears to understand that limiting access of state-compliant cannabis businesses to the banking system is not in the federal government’s interest and is harmful to public safety. We hope that Secretary Mnuchin follows through with his testimony by causing the Treasury to adopt guidance and regulations that add some protection and certainty to banking in the cannabis space, but ultimately this is an issue that will require Congress to act on.”

Arnaud Dumas de Rauly, Chief Strategy Officer for The Blinc Group: “Mnuchin’s testimony to the House Financial Services Committee revealed his intentions to ‘collect our necessary taxes and other things’ with regards to allowing cannabis companies to benefit the traditional banking system. This is a game-changing statement which underlines the federal government’s intentions with regards to our industry. Its implications are numerous, spanning from simple credit card transactions to multi-million dollar funding deals, all the way to public listings for canna-businesses. Now is the time to get our ducks in a row; as soon as the Federal Government puts this play into action, regulation, compliance, and standards will follow and become the key to business sustainability. On the other hand, when he refers to ‘other things,’ I can’t help but wonder if he’s referring to making marijuana plant deposits in their vaults.”

Matthew Singer, CEO of tökr: “Positive movement in the push for legitimizing the cannabis industry. More and more states are legalizing cannabis; the sooner the complaint businesses can get access to bank and financial services, the better for everyone.”

Mike Kramer, CEO of 420 Blockchain: “I, and what I imagine to be a majority of the cannabis industry clearly agree with Deputy Mnuchin. The reasons why money derived from cannabis sales should be in banks are obvious when it comes to trackable taxation, transparency, and safety. The government needs to see that cannabis companies are operating under state compliance laws in order to feel comfortable letting these organizations work with traditional financial establishments. After talks at Capitol Hill with various Congress members, I see an obvious desire to integrate my blockchain technology into states with legal cannabis sales to guarantee compliance. At this point, it isn’t a question of if or why we should let cannabis money in banks, but rather how can we get that money in banks as soon as possible? Everyone sees the need so it’s only a matter of time before that need must be met.”


Debra BorchardtDebra BorchardtNovember 27, 2017
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5min23170

A new report from GreenWave Advisors on the cannabis banking industry estimates that California will collect $5.2 billion once the state implements its adult use marijuana market. Including sales tax, that number could rise to $6.2 billion.

Analyst Matt Karnes wrote, “With other new state markets planned for 2018, we estimate total legal marijuana retail revenues of approximately $12.1 billion, or $14.5 billion including sales tax.” Karnes continues to believe that by 2021, all 50 states and Washington D.C. will have some sort of legalized medical marijuana if not a fully legalized market which would result in retail revenues of $30 billion ($36 billion including sales tax).

Most banks do not service cannabis companies with GreenWave estimating that only 5% of financial institutions are on the record as having a relationship with a known marijuana business. Karnes believes this lost opportunity for the banks will drive new federal legislation. In the meantime, the industry has been pursuing its own solutions.

Dispensaries usually have ATM machines available for cash purchases and some engage in a cashless ATM, which essentially functions as a debit withdrawal to the dispensary. Others use a third party to transact the purchases, prepaid cards or mobile wallets. These wallets transfer money from the shopper’s bank account to the dispensary. Some of these mobile wallet companies include PayQwick, CanPay, Tokken and SingleSeed.

GreenWave noted that this banking and payment challenge has created opportunity in the industry. “The land grab is significant (over 7,000 financial institutions in the U.S.) and the successful rollout of these product offerings will likely mitigate one aspect of cannabis investment risk.”

Cannabis Fin Tech Solutions

Kind Financial was a cannabis banking pioneer with its Link to Banking (LTB) platform. The company is headed by former FinCen official Tom Fleming. “LTB assists financial institutions comply with regulatory guidelines by leveraging a proprietary technology platform that tracks and analyzes transactional data enabling banks to identify reportable suspicious activity,” wrote Karnes. The KIND Financial company also provides software that tracks cannabis from seed-to-sale and can track the flow of funds.

Hypur is a software platform that can audit a company in real time to make sure it is in compliance with the law. It can also provide a connection to the point-of-sale system and allow the banks a way to reconcile cash collections with deposits. This company includes John Vardaman, who worked at the Department of Justice and helped to pen the Cole Memorandum.

Safe Harbor Banking Solutions is an original player that launched in Colorado and more recently in Hawaii. Its platform provides an automated front office to help banks bring on marijuana businesses and monitor them. It also handles the back office work of compliance and monitoring. It charges a subscription fee for the service and will soon be available in eight additional states with plans for 20 states in 2018. Safe Harbor is a subsidiary of Partner Colorado Credit Union.

Banking Solutions

Since the big banks have refused to engage with cannabis companies, credit unions have stepped up and Colorado led the way.

The Fourth Corner Credit Union applied for a master account at the Federal Reserve Bank of Kansas City and was denied. The bank filed an appeal. The San Francisco Federal Reserve Bank has shown its willingness to take these types of deposits, so it’s possible that could help Fourth Corner in its quest.

Partner Colorado Credit Union says it handles $80 million a month in marijuana business deposits but is limiting its exposure to the industry to only 10% of its assets.

Legislation

“The Secure and Fair Enforcement Banking Act of 2017 (Senate Bill S1152 and House Bill HR2215) has been proposed to create protections for depository institutions that provide financial services to cannabis-related businesses,” said Karnes. “While there is support on both sides of the aisle, the timing of a vote is unclear.” Karnes maintains that the Trump administration’s stance toward banking deregulation could be a positive for the cannabis industry.

Karnes concluded, “There is no one answer and we think there will be a patchwork of alternative offerings.”


Debra BorchardtDebra BorchardtNovember 14, 2017
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4min1954821

Getting a cannabis cash into a Federal Reserve has been like finding the holy grail. In Colorado, credit unions have sued in order to be able to establish a master account, which is the key to cannabis banking. This past summer, the Fourth Corner Credit Union won a partial victory when a court said that the Federal Bank of Kansas City couldn’t block access.

Apparently, while that was happening in Colorado, HARDCAR Security found the grail in the state of California. The company has been secretly working in a pilot program for the last four to five months covering some the largest cannabis accounts in California. HARDCAR has been depositing the money in both the Federal Bank of San Francisco and the branch in Los Angeles. “No one else has been able to get into the Fed in California,” said HARDCAR Security CEO Todd Kleparis.

A bank sponsored HARDCAR with the Federal Reserve and all of its guards go through federal background checks. “We bring the money to their locations and they go through it,” said Kleperis. “Our company has moved over $25 million in a few short months.” The most important piece of this banking puzzle is that the cannabis company money is now co-mingled with regular money. It legitimizes the cash and allows it to enter into the monetary system.

Cities Also Need Help With Cannabis Cash

In addition to picking up the cannabis business money and depositing it with the bank, HARDCAR said it is also going to be assisting cities with the movement of their cannabis cash. “No other armored car company wants to take the cannabis cash,” said Kelperis, “This risk is too much. Think about all those grow sites in Desert Hot Springs. Who is going to go get it? We’re going to go to the cities and help them put all these tax revenues in the bank.”

Most of the focus on solving the cannabis banking problem has been on the plant touching businesses, but it also turns out that the municipalities were finding that their banks wanted nothing to do with the cannabis tax revenues. Kleperis mentioned that Los Angeles contemplated setting up its own bank, but that it would take years to establish. He also believes that by getting access to the Federal Reserve system, it will keep more of the money in the state and put more money back into the system. There are many stories of “backyard banks” where farmers bury cash because they have no way to bank it and worry about robberies.

HARDCAR is a company filled with military veterans and that may have made the decision for the Federal Reserve to accept cannabis cash as little easier. Or it could be that the California cannabis market will dwarf the Colorado market and that much cash floating around the state would make for a dangerous situation. Either way, it’s a huge step forward for cannabis banking and the mainstreaming of the industry’s money. Kleperis added, “It’s a huge win.”


Paula CollinsPaula CollinsSeptember 5, 2017
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7min7150

Soon after your opening launch celebrations, you face the grim realities of your first tax return as a Cannabis business owner. (Cue Death Star music.)

Section 280E of the tax code states that “No deduction or credit shall be allowed” for businesses that are prohibited by Federal law. Section 280E explicitly mentions businesses that deal in “trafficking” substances that fall under Schedule I and Schedule II of the Controlled Substances Act.

This is potentially devastating for cannabis businesses, and raises the effective tax rate of a retail or production business to 70%, up from what should be in the neighborhood of 30%. That’s based on a business with $1,000,000 gross receipts, cost of goods sold (COGS) of $650,000, with as much as $200,000 in allowable deductions for a non-cannabis business and $0 allowable deduction for the cannabis business. In that scenario, the non-cannabis business will pay tax on $150,000 of income after deductions, while the cannabis business will pay tax on $350,000 of income after deductions, despite the fact that their COGS were the same, dollar-for-dollar.

Four Easy Ways to Save 40% on Your Tax Bill Every Quarter

  1. Establish a second business for every operation that is not directly related to your cannabis inventory. Name it and claim it. Have one business that is just the cannabis business. If you are a retail cannabis business, the only activity in that business will be the buying and selling of your product. If you are a production business (grower or producer), keep at least one other item in your line that is not cannabis related so that you can handle the tax consequences of §280E. Keep inventory lists separate, according to the differentiated revenue streams. In a retail operation, branded items, other health or wellness products, accessories, and accoutrements — these can be inventoried and their associated costs can be deductible. For example, if you have a dispensary, but you also sell glassware or cleaning products, keep those in a separate business. Voila! You now have deductions that you can claim! Most of your rent, utilities, and marketing of anything not expressly cannabis – entirely legal deductions.
  2. Document each and every item separately. Many cannabis businesses make the mistake of thinking, “What’s the use of keeping books if I can’t claim deductions?” Big mistake! If you receive goods from a supplier, make sure you have them ship the cannabis products separate from any other goods you may acquire from them. Doing so will create a fool-proof way to trace expenses that are solely related to cannabis, and help your other deductions survive the scrutiny of an audit.
  3. Micro-manage the tasks that your staff performs while on the clock. If you are a producer, your employee spends a great deal of time with tasks such as checking timers on lights, running water lines, locking and unlocking cabinets, running spreadsheets, cleaning work tables. If, out of one hour, that employee spends 45 minutes with hands off of the cannabis products and you can document it, you have just found a way to claim 45 minutes of that employee’s time on your taxes. Document these tasks, minute-by-minute. Score! You’ve just made the majority of your employees’ wages deductible. Now take it one step further and cut checks from two separate businesses each pay period for your employees. They will still be making the same hourly wage, but it will come from two separate business entities.
  4. Pay yourself a bigger salary in your non-cannabis business than in your cannabis business. You ARE paying yourself, through your business, right? Being in business is a big time commitment; avoid burnout and personal detriment by paying yourself a sustainable salary. As CEO, Manager, Founder, or whatever your title might be, cut yourself a bigger check from the non-cannabis business than you do from the cannabis business. Go ahead. Be aggressive with this. If you have structured the two businesses so that the cannabis-inventory-based business is only 10-20% of the total enterprise activity, you can get away with paying yourself 80-90% of your salary from the non-cannabis business, and the remaining 10-20% of your salary from the cannabis business.


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The Green Market Report focuses on the financial news of the rapidly growing cannabis industry. Our target approach filters out the daily noise and does a deep dive into the financial, business and economic side of the cannabis industry. Our team is cultivating the industry’s critical news into one source and providing open source insights and data analysis


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