Cannabis-related businesses in the United States face a number of problems. More than half of these United States have legalised cannabis for medical purposes, and nine have for recreational purposes. The federal government, however, keeps it illegal.

Armoured trucks transport the cash of cannabis-related businesses to the local tax office. Photo: Navymailman

Armoured trucks transport the cash of cannabis-related businesses to the local tax office. Photo: Navymailman

 

Investment might not be forthcoming from police pension funds or companies whose rules rank cannabis alongside porn or tobacco. It won’t be possible to open a bank account with a major institution, or process credit card transactions. Even if a state has legalised cannabis, almost no banks wish to deal with cannabis-related businesses in case they run into trouble for breaking federal drug law. Willing banks tend not to publicise their status. Even if a bank account can be opened, it costs from $3,000 to $5,000 a month for an account with no lines of credit, merchant services or mortgages. One commentator called this “really not full banking services”. An estimated 70 percent of cannabis-related businesses go unbanked. This covers accountants, cultivators, lawyers and logistics providers plus any contractors. So these businesses must use cash to pay employees and taxes. And what happens when it comes time to pay the taxman?

Just what happens

Cannabis-related businesses made $6.7bn in the United States in 2017, which people believe will grow to $21bn by 2021. A good chunk of that – $2.8bn – went to the federal government as tax. Julie Hill, a law professor at the University of Alabama, commented that the IRS would like to receive payments in the form of cheques, credit cards or electronic deposits “rather than … bags of cash smelling of weed.” Sadly, that isn’t possible. What happens is that cash is counted and hand-delivered to the Internal Revenue Service (IRS). The IRS then has to count it again.

Targets painted on their backs

Those carrying the cash have targets painted on their backs. Steve DeAngelo founded Harborside Health, whose two branches in California dispense medical cannabis. He remains its CEO. He pointed out that there are now thousands of cannabis-related businesses in the United States, all with tons of cash. That’s literal: $1bn of $100 dead presidents weighs 2,200 pounds, and one ton is 2,000 pounds.

Hey, let’s militarise an industry run by potheads!

It’s sometimes an option to hire traditional armoured truck services, but these might be put off for the same reason as banks. This has led to the development of security companies amounting to no less than a sub-industry. They mostly employ former members of the military or police. It has militarised an industry run by potheads.

Until 2014, companies paying tax in cash were subject to a 10 percent tax penalty. A lawsuit put paid to that in cases where companies have tried to open a bank account but failed. Paper tax returns cost nine times as much to process as the electronic variety.

“Somebody is going to have to die before we really see effective action”

Keegan Petersen is employed by Wurk. (OK, so he works for Wurk.) This company, based in Denver, provides technological solutions to legal cannabis companies. He mentioned state and payroll taxes. There is “extra work and extra security risk for [IRS] employees.” The IRS itself declines to comment. DeAngelo declared, “Somebody is going to have to die before we really see effective action.”

The IRS uses Mitre Corporation of Virginia, to which it coughed up $1.7 million for the handling of large cash payments made by cannabusinesses for federal taxes. Exactly what Mitre does for its money is not publicly known. As things stand, cannabis-related businesses have to make an appointment with the local office of the IRS and take their cash. Counting of the cash takes place in a secure space with two IRS employees constantly present.

Henry Wykowski is a one-time federal prosecutor who now represents Californian cannabis dispensaries with regards to tax. He stated that federal refusal to allow cannabusinesses access to banking services was “[t]he stupidest thing these guys could do”. He is of the opinion that the government should oversee the cannabis industry and not force it “to become further entrenched in the underground where it’s been”. But the contract with Mitre Corporation could be an indication that nothing will be changing soon.

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