Since Missouri legalized medical marijuana in 2018, banking for marijuana-related businesses has become more accessible. But the marijuana industry continues to face hurdles that other commercial establishments don’t have to consider.
Marijuana remains federally illegal, which means marijuana-related businesses have restricted access to federally regulated financial services, including loans and 401(k)s. Marijuana-related businesses are also limited in which payment processing companies (debit/credit cards) they can work with and have to pay a high rate of tax.
Ever since the sale of medical marijuana began in Missouri, the industry has exploded. Sales, which began in October 2020, recently topped $600 million, according to Lyndall Fraker, director of public outreach for Missouri’s Division of Cannabis Regulation.
Tax rates above 70%
The 280E tax code is one of the biggest challenges facing the marijuana industry nationwide, said David Brodsky, director of retail at The Farmer’s Wife, which operates three dispensaries in the South. of Missouri.
Created in 1982, tax code 280E does not allow the deduction of expenses related to the sale of cocaine, amphetamines and marijuana. Since the taxes are administered by the federal government, 280E still applies in states that have legalized marijuana for medical and recreational use. Marijuana-related businesses can only deduct from their taxes expenses related to the purchase of products from suppliers.
Expenses such as employee salaries, rent and utilities, marketing, and maintenance cannot be deducted. Brodsky said The Farmer’s Wife pays a tax rate of over 70%, which is the main driver of rising product costs.
“We don’t make a lot of money,” Brodsky said. “To be perfectly honest, and that’s what I tell a lot of people, we’re glorified tax collectors because of 280E.”
Difficulties with cashless payments
Some payment processors don’t do business with the marijuana industry, making it difficult for their cardholders to make payments at a dispensary.
Mastercard, Visa, and American Express are among the largest payment processors that have declared it against their network policies to pay for marijuana products.
Fraker of the Cannabis Regulatory Division said most dispensaries have ATMs, giving customers the ability to withdraw cash for purchases.
Brodsky said The Farmer’s Wife offers both a traditional ATM with a $2 service fee and a cashless ATM with a $3 service fee.
Cashless ATMs are popular in the marijuana industry. The system works by rounding up purchases to make a transaction appear as a cash distribution. Then the customer receives the change.
For example, if a customer’s transaction total at The Farmer’s Wife was $37 and they used the cashless ATM, their total would be $43, which includes rounding to $40 and $3 service charge. The customer would then receive the $3 difference between their purchase and the ATM round.
In early December, a few ATM transaction processors shut down the ability to conduct cashless ATM transactions, impacting marijuana-related businesses across the country, including The Farmer’s Wife. High Times reported on December 7, 2022 that only about 20% of marijuana-related businesses still have access to cashless ATMs.
On Wednesday, Brodsky said The Farmer’s Wife cashless ATM was back up and running.
Where Do Marijuana Businesses Bank?
The majority of marijuana-related businesses in Missouri work with small, state-chartered banks, which operate under the regulation of the Missouri Division of Finance.
In years past, marijuana-related businesses may have had more difficulty finding banks open to working with the marijuana industry. But as the stigma around marijuana eases, more and more banks are open to partnering.
About three years ago, the Missouri Department of Health and Senior Services conducted a survey of the number of marijuana-related businesses in the state that were successful in finding banks to work with. This survey was conducted as the state’s first medical marijuana dispensaries were opening. The department’s survey found that 75% of marijuana-related businesses found banks, Fraker said.
Fraker said he is aware of a “handful” of banks in the state that do the “majority” of business with the marijuana industry. He did not reveal which banks.
“Some banks have taken the time to put a program in place so they can serve cannabis businesses,” Brodsky said. “Basically what they need to do is an extremely high level of reporting.
Brodsky said The Farmer’s Wife had no problem finding a state-chartered bank to work with, but banks charge high fees from businesses for running the highly regulated program. He did not disclose the cost of monthly fees paid by The Farmer’s Wife.
Federal and state chartered banks must meet the Bank Secrecy Act expectations set out by the United States Treasury Department’s Financial Crimes Enforcement Network in 2014. These long expectations require banks to conduct an in-depth “customer due diligence” assessment for a new Associate Customer. with the marijuana industry.
Assessment recommendations include verifying a marijuana-related business’s license, developing an understanding of the business’ “normal” business activities, including the types of products sold, and monitoring any activity suspicious conduct by the company.
Recreational marijuana will be available for purchase in February
Missourians approved the legalization of recreational marijuana in November 2022. Fraker said the Department of Health and Senior Services is still on track to meet constitutional deadlines, marijuana to recreational purposes being available in dispensaries as of February 6.