Why Alabama’s medical marijuana industry might be cash-only

By Mike Cason 

The Alabama Medical Cannabis Commission meets on Aug. 11, 2022 in Montgomery. (Mike Cason)

Alabama became the 37th state to legalize medical marijuana when lawmakers approved a bill last year. But marijuana remains illegal under federal law as a Schedule I controlled substance, the most restrictive category.

The conflict between state and federal law presents challenges as Alabama prepares to license the companies that will build a new industry from scratch, from the cultivation of the plants to the sales of products to customers at dispensaries.

One of the big questions: How will the companies involved in the business find banks where they can deposit their money, set up accounts, and apply for loans?

Banks have generally steered clear of the cannabis business in other states that have legalized marijuana for medical or recreational use. Because marijuana is still banned under federal law, involvement in the marijuana business poses a risk for banks, which face strict regulations against supporting illegal activities and money laundering.

Bank regulators and bank associations want Congress to provide clarity. The Secure and Fair Banking Enforcement Act (SAFE Banking Act) would prohibit federal regulators from penalizing banks for providing services to legitimate cannabis-based businesses. But the bill has repeatedly stalled in Washington.

The result is that marijuana businesses in other states have largely operated on a cash-only basis. That causes an inconvenience for customers who cannot buy products with a swipe of a card. But the problem is more than inconvenience, Alabama State Treasurer Young Boozer said.

“The seller holds the cash,” Boozer said. “They can’t take it anywhere. They put it in bags. What has happened in the past is they have rented storage space. Some people have actually bought old bank buildings with vaults and a third party basically holds the cash for them until they need it in order to pay for supplies and other things.”

“It is very dangerous. There’s a public safety issue with respect to it.”

Boozer made those comments after last week’s meeting of the Alabama Medical Cannabis Commission, the panel that will regulate the state’s new industry. Next summer, the commission will begin issuing licenses for growers, processors, transporters, and dispensaries. Products are expected to be available in late 2023 or in 2024.

While production is months away, people and companies who are planning to be part of Alabama’s medical marijuana business are already looking for where they can establish a bank account or receive a loan. Mike Hill, superintendent of the Alabama Banking Department, said the agency is receiving many questions from banks.

Hill said the Banking Department’s message is that medical cannabis is legal in Alabama but that bankers should proceed with caution. He said that means a greater degree of due diligence than banks follow with most categories of prospective customers.

Hill said no banks have informed the department that they will serve medical marijuana businesses but he expects that some will.

“We did ask them to call us and talk to us about it before they did it,” Hill said. “We just did that so we could talk to them about the risk. I’m sure their attorneys have already told them. But we just like to put them on notice that we’re not going to write you up as long as you do your due diligence. But there are risks out there that are not inherent to what we do. So, you’ve to make your own decision and it will be your reputational risk.”

Hill said he has attended seminars held by federal regulatory agencies on the topic. Hill said there is an understanding that banks will not face federal penalties if they follow the necessary precautions to make sure their customers are legitimate. But Hill said without clarity in the law there is risk, partly because the positions of federal agencies can shift with changes in presidential administrations.

“Congress is the one that has to correct it and we’re working very hard with our national association to get Congress to change that,” Hill said.

U.S. Rep. Ed Perlmutter, D-Colorado, is the sponsor of the SAFE Banking Act. The House has passed it six times. Last year, it passed the House by a vote of 321-101. Four of Alabama’s seven House members voted for it — Republicans Mo Brooks, Barry Moore, and Mike Rogers, and Democrat Terri Sewell.

The bill has not passed the Senate, where it is assigned to the Banking Committee. Alabama Sen. Richard Shelby, a member of the Banking Committee, is still reviewing the legislation. Sen. Tommy Tuberville supports the bill.

The reliance on holding large sums of cash makes medical cannabis businesses targets for robbery and crime, supporters of the SAFE Banking Act say. That was one of the points raised by Washington State Treasurer Mike Pellicciotti in an op-ed article in The Seattle Times in May. The state of Washington legalized recreational marijuana through citizen initiative a decade ago, but the industry there is still mostly cash-only, according to Pellicciotti.

“Being a cash-based industry is more than an antiquated logistical problem in a world of digital commerce; it creates a 21st century Wild West in which armed hold ups and storefront heists are a daily industry reality,” Pellicciotti wrote.

The concern that cash-based businesses are targets for criminals is one of the reasons the American Bankers Association includes on its list of why it supports the SAFE Banking Act. The association said cash reliance increases the likelihood of tax evasion and hinders the reinvestment of money generated by the industry into the economy.

Scott Latham, President and CEO of the Alabama Bankers Association, said that while there is not a flat prohibition on banks serving legitimate cannabis businesses, the only applicable regulations he is aware of were issued in 2014 and do not effectively protect banks.

Latham, whose association has 120 banks as members, all but a few of the banks in the state, said it is his guess that Alabama banks will generally avoid the cannabis industry until Congress clarifies the law.

“When you’ve got that hanging out there about the legality of it, the banks are in my opinion wise to step back and say, ‘I need some more guidance, I need some more clarity before I can do this,’” Latham said.

Latham said the uncertainty could affect those indirectly connected to the cannabis businesses.

“If I’m in the cannabis business and you are my landlord, are you impacted?” Latham said. “And is any of the business that you’re now doing with your bank impacted in any way or jeopardized in any way because of the fact you might be servicing me, allowing me to rent property from you?

“We’ve had a lot of conversations, folks who represent the various state associations as well as our national partners about just what are the implications and how far does it go. And I think for us the criminality of it, and then who’s in the mix and who’s not, that causes us the greatest concern there.”

The uncertainty puts bankers in the difficult position of possibly having to turn away potential customers, Latham said.

“Our banks are all about communities,” Latham said “They are all about growing our state. They are all about being resource for customers and prospective customers and economic development and all those good things. But this is a very perplexing issue.”

John McMillan, executive director of the Alabama Medical Cannabis Commission, said Boozer is scheduled to make a presentation on the banking issue at the commission’s next meeting, set for Sept. 8.

The AMCC is setting up the regulatory framework for the new industry. Beginning Sept. 1, people can begin requesting applications for licenses as cultivators, processors, transporters, testing laboratories, and dispensaries, or as integrated companies doing multiple functions.

Physicians who receive training and certification will be able to recommend medical cannabis products for more than a dozen conditions or symptoms: Autism, cancer-related weight loss or chronic pain; Crohn’s; depression; epilepsy or a condition causing seizures; HIV/AIDS-related nausea or weight loss; panic disorder; Parkinson’s; persistent nausea not related to pregnancy; PTSD; Sickle Cell; spasticity associated with diseases such as ALS and multiple sclerosis and with spinal cord injuries; terminal illnesses; Tourette’s; and chronic pain for which conventional therapies or opiates should not be used or are ineffective.

The products will come in the form of tablets; capsules; tinctures; gels, oils and creams for topical use; suppositories; transdermal patches; nebulizers; and liquids or oils for use in an inhaler.

Raw plant material, products that are smoked or vaped, and edibles like candies and cookies will not be allowed.

Alabama Banking Superintendent Hill said until the uncertainty caused by the illegal status of marijuana under federal law is fixed, banks are in a tough spot as they try to balance potential risk with the need to serve a customer.

“It’s a hard decision for banks and Congress could so easily fix the problem,” Hill said.