MMJ Cash Bust Worries Industry

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A clash of cannabis laws hovers over the mysterious May seizure of $165,620 in Missouri medical marijuana-generated cash by federal agents with the Drug Enforcement Administration. The money was being delivered across Kansas — where state law considers marijuana entirely illegal — and on its way to its final destination in a credit union in Colorado, where cannabis is legal.

While key details of the incident remain cloudy, the fact that Missouri cannabis businesses are finding creative (and risky) methods of banking their money, going as far as shipping it via van across a cannabis-unfriendly state, comes as no surprise to the Missouri Bankers Association.

That’s because there’s a good reason why multiple cannabis dispensaries would rely on a Colorado institution instead of depositing it in a local bank: For the most part, the banks here won’t take their money.

“It’s just not widespread in Missouri; they are few and far between,” says association spokesman Jackson Hataway, who sees the Kansas cash seizure as emblematic of Missouri’s lack of banking resources for cannabis businesses.

“It’s the economic scale of it,” explains Hataway. “If you’re willing to drive your funds across the state and across state lines, then you’re talking about a pretty serious business that is is trying to do something with a significant amount of cash. That’s the only time that line of thinking would make sense.”

Launched last October, Missouri’s medical marijuana industry is expected to generate more than $200 million in sales by the end of 2021. The money has to go somewhere. For multiple Kansas City dispensaries, it went into bags, which went into a van, which then made a 700-mile journey before being deposited in Colorado.

However, on May 17, that particular banking solution collided with a sheriff’s deputy in Dickinson County, Kansas, about 150 miles west of Kansas City.

According to filings in federal court (which include an affidavit submitted by a DEA agent), the deputy pulled over a driver working for Empyreal Logistics, a Pennsylvania-based cash transport company, for a traffic stop on Interstate 70.

Informed by the driver of the plan to pick up cash from cannabis businesses in Kansas City before returning to Colorado, the deputy ultimately allowed the Empyreal van to continue the journey, but he also alerted federal agents; the next day, the DEA surveilled the Empyreal employee “stopping and entering multiple state marijuana dispensaries in Kansas City.”

The affidavit describes how the very next day, the van was stopped for a second time, by the same Dickinson County deputy, leading to the seizure of $165,620.

No drugs were seized, and the affidavit does not disclose whether the driver faced criminal charges for supposedly transporting the proceeds from what the state of Kansas and the federal government consider an illegal drug operation. In September, Empyreal filed a legal claim to contest the federal government’s seizure, arguing that the cash was “legally obtained” and that the company “has done nothing … to merit forfeiture of the Subject Currency.”

The next court hearing in the case is scheduled for January, and, in the meantime, Missouri’s handful of cannabis-friendly banking and finance professionals are left to grapple with the possible implications.

David Smith, a St. Louis accountant who works with Missouri cannabis businesses, says the Kansas case raises questions about the connection between the DEA’s interest in enforcing federal drug laws over those of states.

“It’s still federally illegal in Missouri; the DEA could theoretically seize any existing operator,” Smith notes.

“It’s curious to me,” he continues: “If the DEA was involved, why did they not pick it up in Missouri? Why wait until they cross state lines?”

Smith points out that the distinction between cannabis as a product, and the revenue generated around the cannabis industry, is one that the federal regulators don’t have to acknowledge. As the government argued in the Kansas case, any money generated from a cannabis operation is illegal.

That point is well understood by federally insured banks, Smith says, which is why so few are willing to take the risk of potentially running afoul of federal regulators. That hesitance extends even to vendors, as one magazine publisher found out when, as reported in October by St. Louis Public Radio, his decision to run a cannabis-related advertisement led to his bank demanding a $500 monthly fee for additional audits and compliance measures.

There’s no clear cut line, Smith notes. Each bank is weighing the risk and relationship with each cannabis business or cannabis-related vendor.

“These are snowballing issues,” he says. “You have cannabis operators trying to do the right thing, keep money in the banking system, do the proper reporting, but still have these challenges in front of them. We’ve heard of businesses whose banks called them up, saying, ‘We’re not doing business with you anymore, come pick it your money up this afternoon.'”

If that happens, businesses may be forced to turn to out-of-state banks in states such as Colorado, whose cannabis industry has had years to create relationships and build trust with financial institutions.

Missouri isn’t quite there yet. One Missouri bank president, who spoke to the Riverfront Times on the condition that he and his bank not be identified, says his bank’s cannabis clients haven’t run into any similar trouble with federal agents or cash seizures — though, unlike the Kansas City dispensaries, all the revenue for the bank’s clients is staying within state lines.

“It’s the unknown spooking people,” the bank president suggests, remarking on the cash seizure in Kansas. “It’s worth paying attention to and monitoring, but at this point, we’re just treating it as an isolated incident.”