Financial funnels of MO cannabis and why the purchase process at pot shops can be so annoying

Art by Cassondra Jones

While it may seem like those working in the cannabis industry are happy-go-lucky pot-burners, when it comes to banking, they don’t have it so easy. Simply put, since cannabis is only legalized at the state level—remaining illegal federally—licensed cannabis companies cannot deposit finances within federal banks. Their revenue remains illegally acquired at the national level. 

There are many different heaps and bounds that dispensaries, manufacturers, and cultivators must maneuver to ensure that their business is following the state’s legal regulations. This process is one that many cannabis consumers are unaware of. But that is all right. Everyone is gradually learning the ins and outs of the industry, just a little over a year since recreational sales began.

For a service that has already supplied the Missouri market with over one billion dollars worth of the favorable flower, the more knowledgeable consumers are, the easier the process is for all parties. Next time you find the process annoying in person, here’s a breakdown of what your cannabis comrades are having to work through.

Over-The-Counter Confusion

Transactions at dispensary counters can be confusing—Especially for first-time buyers. About 60% of all cannabis transactions in Missouri are cash transactions at the dispensary level, according to experts. That part is easy for consumers. Give the budtender cash, and in return, they reciprocate with the product and change, if any. 

But the other 40% gets a little tricky. When paying with a debit card, the dispensary’s process is to use the card in a cashless ATM transaction, withdrawing a certain amount from the customer’s bank account to cover the expenses of their purchase. In most instances, customers will receive change in these transactions because the price of products usually does not fall on a perfect pinpoint amount that the ATM can withdraw.

Not only can this be a bit confusing or frustrating for consumers, but as of right now, cannabis users cannot pay for products with a credit card. 

“Credit card companies will not allow transactions because it’s federally illegal,” Franklin’s—local cannabis manufacturing company—CEO Michael Wilson says. “When a big company like that—especially a publicly traded one—gets involved in the cannabis market, that can mess up a lot of things for them legal and regulatory wise. So big corporations have sat off in the distance for a lot of these things because it’s a high risk, as they would call it, industry.”

Marijuana is currently classified as a Schedule I substance. But, as of lately, the FDA has published documents in support of reclassifying cannabis as a Schedule III substance. In turn, some in the cannabis industry are hopeful that this rescheduling will occur, which could change the landscape of cannabis banking, possibly bringing in credit card companies, such as Visa and Mastercard.

But don’t let that fool you into thinking you will be able to walk into a dispensary next week, or even next month and pay with a credit card. 

“The marijuana business does not move fast. The changes happen quickly in this business, but the business itself is usually a slow-churning one,” Wilson says.

Banking Buds

One may ask, “Okay, now what happens with these companies’ funds since they cannot bank federally?” That’s where local banks play a role.

Out of the thousands of chartered banking institutions, only around 800 work with licensed cannabis companies. And only a select few are here within the Kansas City community. 

“We have three or four banks that will serve us as professional customers,” Wilson says.

One of those banking bohemians is Bison State Banking. Their bank works with different individuals within the Kansas City cannabis industry, ultimately seeking to help these professionals grow in their occupations while eliminating some of the obstacles and grappling that come with these finances. 

“We feel like we have built a system that allows our clients to actually grow their business versus having to spend time in their business with their bank, to verify where their money is going and coming from,” Bison State Banking CEO Ryan Wiebe says.

This side of the finance realm does not come easier for bankers either. Since the market is so fresh in the state, there are strenuous regulations and procedures, with little guidance.

“There’s no guidance. Our regulators have no real, concrete ability to administer, from a regulatory perspective, or offer any assistance or help because the framework doesn’t exist, still because of its federal illegality,” Wiebe says.

The process of banking with licensed cannabis companies is vastly divergent in comparison with any other industry. Banks must have bolstered Anti-Money Laundering and Bank Secrecy Act policies to ensure that funds are not being acquired illegally. 

“It’s 2-3 times the due diligence, if not more, on certain occasions, compared to a normal entity,” Wiebe says.

“We have the same services, sometimes it just costs us more, the bank has to do tons of reporting on it to make sure that we’re not involved in organized crime,” Wilson says.

On top of that, beneficial ownership certification is more strict in the cannabis industry, having to account for those with 10% ownership or more, whereas other industries must account for 25% or more. This can get extremely tricky, due to the fact that there are so many out-of-state investors within these companies.

“Doing that legwork and enhanced due diligence background to find out the key people, the key companies to approve them is one of the challenges,” Wiebe says.

These are not the only hoops that these local banks go through when working within the spectrum. There are plenty of other procedures and regulations that they must abide by.

“We need licensing documentation, site inspections, verifying that you’re compliant with the state, even though the state complies with it,” Wiebe says. “Those are the different things that we have to do to get through it. It can be cumbersome and each institution is different from the other.”

The level of difficulty—as far as banking goes—varies from business to business within the market.

“If you’re going to measure from most difficult to least difficult, it does go in order,” Wiebe says. “Essentially dispensaries are more challenging to get approved and moved through the banking system than it is from a manufacturing or cultivation facility, due in part to the copious amounts of cash.”

Federal Future

It is very clear that cannabis finances are complex, to say the least. These additional procedures, processes, and regulations can be incredibly burdensome on all parties involved. So when is this going to get easier? Well, that is going to take a fair amount of time.

“I want it to be legal as quickly as possible. But my professional opinion is that I don’t think we will see any sort of federal changes until all 50 states in the union have some version of cannabis approved in practice, whether that’s medically or recreationally,” Wiebe says. “Once that occurs, then you have some sort of material framework that can be built upon that.”

“We’ve got states like Kansas just across the state line. I think it will be a challenge. I think that it will be one of the last states in the union to ever get to that point.”

As such a raw market right now in Missouri, it is important for consumers to be patient with individuals providing these services because this is not something that they want, nor something that they can change in the time between consumers walking in the door and pulling payment out of their pockets.

“Consumers need to know we’re still pushing forward. We all just got together and voted to bring it to Missouri in the medical market. We all just got together and voted to bring it to Missouri in the recreational market, and it’s gonna take time to normalize,” Wilson says.