With billions in marijuana cash unbanked, Pa. leads an appeal to Congress for protections

With millions of dollars in medical marjuana proceeds — all cash — being moved across Pennsylvania monthly in unmarked cars, state banking regulators have appealed to leaders in Congress to create protections for financial institutions so that banks and credit unions might serve the state's cannabis industry.

The Wolf administration on Friday sent a letter making the request to Congress' leaders: U.S. Reps. Paul Ryan (R., Wis.) and Nancy Pelosi (D., Calif.), and U.S. Sens. Mitch McConnell (R., Ky.) and Chuck Schumer (D., N.Y.).

"We urge Congress to consider legislation that creates a safe harbor for financial institutions to serve a state-compliant business, or entrusts sovereign states with the full oversight and jurisdiction of marijuana-related activity," states the letter from Secretary of Banking and Securities Robin L. Wiessmann. State banking officials from Alaska, Connecticut, Hawaii, Louisiana , Michigan, Montana, Nevada, New York, Oklahoma, Oregon, and Washington state also signed the letter.

The federal government considers marijuana illegal, although 31 states and Washington, D.C., have legalized the drug for either medical or adult recreation use.

The handful of institutions that provide service to the marijuana industry are at constant risk of federal prosecution, asset forfeiture or criminal penalties.

"The well-documented conflict between federal and state law creates barriers for banks desiring to serve businesses involved in state-licensed marijuana activities," said Wiessmann. "This has resulted in regulatory and legal risk  … and created a 'cash and carry' industry."

Currently about 70 percent of  all American  "plant touching" marijuana businesses — growers and dispensaries — lack bank accounts. Nearly 50 percent of ancillary service providers also are without a financial institution, according to Philadelphia-based cannabis banking attorney Steve Schain.

Fewer than 0.03 percent of the nearly 12,000 U.S. financial institutions are willing to bank marijuana money, said Schain, citing his own research. The upshot: marijuana-related businesses conduct all transactions in cash, including paying employees, rent, taxes and vendors.

"The cash-only business creates horrific safety and operation concerns for both marijuana-related businesses and their employees, vendors, landlords and taxing bodies," Schain said.

The lack of banking also makes cannabis businesses vulnerable to theft, and insurance covers only up to $20,000 in a "cash loss," said Schain. "Because marijuana-related businesses often have $200,000 to $500,000 in cash on hand,  theft can be a fatal blow to the enterprise."

Though the state's medical marijuana program has been running since February, the Wolf administration's letter shows that unbanked cash poses a threat to the effort.

"This raises concerns with respect to public safety, increases difficulty tracking the flow of funds, and contributes to a loss of economic activity, workforce development and community development opportunities," Weissman wrote.

An Obama-era document called the Cole Memo previously offered guidance to financial institutions and provided some limited protections. Earlier this year, Attorney General Jeff Sessions rescinded the memo, "leading to uncertainty about banks' ability to serve this industry without running afoul of federal statutes," Weissman wrote.