Let banks work with cannabis businesses: That was the message Alaska's attorney general sent to Congress on Monday.
Citing public safety concerns, Alaska Attorney General Jahna Lindemuth joined 18 other states asking Congress to pass legislation that would provide a "safe harbor" for financial institutions seeking to work with the rapidly growing marijuana industry, a Jan. 16 letter to Congress said.
"This would bring billions of dollars into the banking sector, and give law enforcement the ability to monitor those transactions," the letter said.
The statement marks the second time this month that Alaska officials have asked for the federal government's guidance on cannabis policy.
On Jan. 4, the Justice Department scrapped 2014 federal marijuana policies that had served as the foundation of Alaska's cannabis industry. The decision prompted the state's Marijuana Control Board chair to resign, and sparked an outcry from Alaska officials.
Meanwhile in Alaska, cannabis businesses are resorting to everything from burying cash in their backyards to setting up webs of companies to access banking services.
One cash counting machine, $4 million in cannabis money
Alaska's tax division, within the Department of Revenue, is responsible for dealing with the state's $50-an-ounce marijuana tax.
Once the cash is in the state's hands, it's no longer viewed as drug money in the eyes of financial institutions – instead, it is state revenue, a tax division official previously explained.
To handle the cash, the Alaska Department of Revenue set up a drop box and cash-counting room in downtown Anchorage where state employees handle the money, before an armored courier service drops it off at a bank.
Since October 2016, more than $4 million in cash — 74 percent of all cannabis excise tax money — has been processed by state employees using a single cash-counting machine.
Cannabis businesses place their cash in a drop box, which is picked up and counted within one day, said Ken Alper, tax division director.
"It has worked very well," Alper said of the system.
But that may not always be the case. The tax division is estimating $18 million in cannabis tax revenue in fiscal year 2019, which would mean more than $1 million flowing through the cash-counting room each month on average.
"It takes a lot of manpower, hours, to deal with the physical cash," Alper said. If the cash increases, the division may need to hire new staff, he said.
Alper supports marijuana business banking.
"These are legitimate business people who should be able to have the same rights and responsibilities as every other one," Alper said. "Their business is constrained and damaged by their being forced to rely on cash."
While the state's cash system is working, at least for now, cash creates huge liability and personal safety issues for marijuana businesses.
Buried in the backyard
Cannabis businesses are wary of speaking on the record about how they manage their cash, but marijuana attorney Jana Weltzin spoke generally about some options businesses have.
One option is to simply conduct all business in cash — pay employees, utilities and taxes in cash, along with every other component of running a small business, Weltzin said. Some businesses store that money in safes, either on or off premises.
Weltzin has even heard of marijuana businesses burying cash in their backyards.
"I've heard that same story from a licensed operator, and from a black-market actor," Weltzin said. "It's like you're forced to act like a black-market actor because you don't have access to banking."
Another option could be to buy gold with the marijuana cash, Weltzin said. That way, someone can hang on to the gold for a few days, then exchange it for a cashier's check in their name, which can then be deposited in a bank.
A third approach is to create a web of companies that manage the marijuana licenses — like consulting companies or property management companies, which are not marijuana businesses and can access banking.
But having multiple levels of companies gets complicated, and running just one small business is "incredibly hard as it is," Weltzin said.
Banking would also shore up the concerns of state and federal officials who don't want money flowing into the hands of criminals, Weltzin said.
Monday's letter to Congress echoed the same idea.
"The grey market makes it more difficult to track revenues for taxation purposes, contributes to a public safety threat … and prevents proper tracking of large swaths of finances across the nation," the attorneys general wrote.
Why banks can — but don't — work with cannabis companies
Alaska's congressional members say they are looking for legislative solutions to the cash problem. Rep. Don Young and Sen. Lisa Murkowski wrote in emails Wednesday that they support passing legislation that would allow cannabis businesses to have access to banking services.
Young, a co-founder of the Congressional Cannabis Caucus, said he has helped introduced legislation that would protect financial institutions wanting to do business with the cannabis industry.
Sen. Dan Sullivan wrote that he is examining all legislative proposals related to marijuana banking to "ensure the rights of Alaskans and the State of Alaska are protected."
Twenty-nine states have medical marijuana laws on the books, and eight states, plus the District of Columbia, have legalized recreational use by adults.
But cannabis remains illegal in the eyes of the federal government. That means although it's legal at a state level, entities that are entwined with the federal government and subject to federal laws, including banks and credit unions, must weigh their risks if or when they engage with the industry.
However, banks are allowed to provide services to marijuana businesses, if they follow strict protocols.
In 2014, the Treasury Department's Financial Crimes Enforcement Network published guidance for financial institutions seeking to provide services for marijuana businesses. It requires vigilant monitoring, and there are three levels of reporting that banks and credit unions are required to follow.
That guidance hasn't changed, Stephen Hudak, chief of FinCEN public affairs, wrote Wednesday, even as the Justice Department has scrapped its own Obama-era marijuana policies.
Roughly 400 banks and credit unions openly provide services to cannabis businesses nationwide, according to the Treasury Department.
But the guidelines aren't enough for many institutions, which could be subject to fines or criminal penalties if the federal government found a bank was servicing a cannabis business but had been at fault somewhere along the line.
Alaska banks and credit unions began shutting down bank accounts in 2016, before any legal marijuana had even been sold.
Dan McCue, senior vice president of corporate relations for Alaska USA Federal Credit Union, said Wednesday that nothing has changed since then for the credit union.
"Our board policy does not allow us to open accounts for cannabis or cannabis related businesses until it is allowable under federal law," McCue wrote in an email.
The U.S. cannabis industry is expected to exceed $20 billion by 2021, the attorney generals' letter said.