As the clock ticks toward January 2, 2018, the date – under voter-approved Proposition 64 – when California entrepreneurs and businesses might legally be able to grow, distribute, and dispense recreational marijuana to adults in the state, a number of questions still aren’t fully answered. One important one: What sort of banking relationship will be possible for those who have jumped through all the regulatory hoops in order to sell cannabis products?

Cannabis Industry in Other States is Largely Done on Cash Basis

Federal law generally prohibits banks and credit unions from taking deposits generated through marijuana sales. In Colorado, Washington, Oregon, and Alaska (where recreational marijuana is already legal), and in the more than 20 states in which some sort of medical marijuana is allowed, the cannabis industry has experienced significant banking issues in spite of legality under state law. Most business is done on a cash basis.

The “Cole Memo”

Some thought that the situation would be eased when then Deputy Attorney General James M. Cole issued a memorandum (the “Cole Memo”) providing guidance to federal prosecutors concerning marijuana enforcement under the Controlled Substances Act. Generally speaking, the Cole Memo indicated that the Department of Justice (DOJ) would take a look-the-other-way approach to marijuana enforcement in legalized states. Under the Cole Memo, the DOJ would step in only to keep cannabis products away from minors, and to prevent criminal gangs and cartels from expanding their presence in the industry. Shortly thereafter, the Treasury Department issued guidelines indicating that it would be legal for banks to provide financial services to marijuana-related businesses.

Since the Cole Memo, some community banks in other states quietly began serving the cannabis industry, but large banks still refuse. Big banks generally have determined that the risks outweigh the benefits. Where Colorado and Washington cannabis sellers have found banking relationships at all, they tend to be limited and costly. According to some industry experts, sales of legal marijuana exceeded $5 billion in 2015, mostly in cash. According to Colorado congressman, Ed Perlmutter, 40 percent of Colorado cannabis businesses lack bank accounts altogether.

Other Challenges of a Cash-Based Business

Experts point to other problems faced by businesses without adequate banking relationships. They include:


•  Payment of employment taxes for employees (including, in most cases, a 10 percent penalty since the IRS doesn’t like cash).

•  Payment of income taxes to the IRS.

•  Increased headaches in paying typical business bills: Electricity and other utilities, rent, professional services (legal and accounting), and the like.

Marijuana Sales May Be a Boon for ATM Manufacturers

The cash basis business model required of most legal sellers of marijuana has been good news for at least one business: ATM manufacturers. Virtually every cannabis outlet in Washington and Colorado sports at least one ATM, since the businesses themselves cannot process credit or debit card payments. Credit card companies are just as leery of the cannabis industry as are large national banks.

Cash Lures Crime

Having all that cash lying around is a legitimate concern, of course. While most Colorado “stores” employ armored car services to pick up the day’s revenue, where it is that all the cash goes each night can be somewhat of a mystery since, as already noted, banking options are limited. According to at least one report, since Colorado fully legalized marijuana in January 2014, the Denver Police Department has logged more than 200 burglaries at marijuana businesses, as well as shoplifting and other crimes.

Heady Times Ahead: Experienced Commercial Attorneys Can Help Get Things Under Control

Is your business prepared for California’s rollout of legalized recreational marijuana? Do you have questions and concerns about how to maneuver through the twisting road of regulations ahead? Have you correctly weighed the benefits and risks that lie ahead for the cannabis industry in California? Prudent business owners turn to experienced commercial attorneys like CKB VIENNA LLP for assistance.


For years now, we have represented all sorts of businesses in many types of legal and regulatory environments. We have researched the technical requirements of Prop 64 and the myriad other regulations that will have an impact on the sale of recreational marijuana in California. We also have extensive experience in representing financial institutions. We know what makes them nervous. Our team stands ready to represent you. We have offices in Rancho Cucamonga, San Bernardino, and Los Angeles. Contact us by telephone – 909.980.1040 – or complete our online form.