Legal pot in Nevada, one year later: Volume of cash driven around Reno-Sparks on daily basis is ‘a scary thing’
Despite millions in revenue, unique challenges and heightened scrutiny continue to challenge cannabis businesses in the Silver State
As the state of Nevada nears its 1-year anniversary (July 1, 2018) of legal recreational cannabis sales, the Northern Nevada Business View is rolling out a series of stories regarding the state of the industry one year later; what’s changed (or stayed static) over the past 12 months; and what opportunities and solutions exist for the future of this sector of business across Northern Nevada.
This is the first story in that series; look to http://www.nnbw.com in the coming days for more coverage.
RENO, Nev. — It’s late 2017, and a Reno man, bound for Las Vegas, is clutching a duffle bag stuffed with $200,000 in cash as he strolls to the security checkpoint at Reno-Tahoe International Airport.
The cash-filled carry-on, as one might guess, grabs the attention of TSA. He’s plucked from the line of travelers for questioning.
Why, security asks the Reno man, is he taking this much cash on his flight to Las Vegas?
The man may be headed for Sin City, sure, but these stacks of cash are not meant for the Vegas Strip. Quite the opposite — the cash is earmarked for the Internal Revenue Service.
The man, who provides his personal and professional ID to security, says he is a principal of a Reno-based cannabis cultivator who needs to pay the company’s income and payroll taxes. As such, the IRS office in Reno does not accept cash for tax payments.
No matter, TSA flags the bag and tells the man that an agent with the U.S. Department of the Treasury will be waiting for him at the gate when he walks off the plane in Vegas. An hour later, the man is greeted by a badge; his IDs are handed over, his cash-related intentions are retold.
“They were convinced he was a criminal,” says Tim Nelson, of Evans Nelson & Company CPAs, located in Reno. The man in question is a client of Nelson’s. “So he then drove to the IRS and paid his taxes and got the receipt to prove that he paid in cash.”
Nelson’s example represents a microcosm of the unique challenges and heightened scrutiny facing cannabis businesses in the Silver State.
After all, with federally regulated banks nonexistent in the marijuana space in Nevada, and virtually the entire U.S., cannabis businesses are operating in cash — and lots of it.
In fact, Nevada alone has seen nearly $305 million in legal adult-use marijuana sales from July 2017 to March 2018 — including a record $41 million in revenue in March 2018 alone — according to the Nevada Department of Taxation.
Northern Nevada has accounted for nearly $55 million, roughly 18 percent, of the statewide total over that span.
“I tell people that if you really knew the amount of money that’s being driven around … Reno-Sparks on a daily basis, in cash, you would just be floored,” Nelson said. “Just the volume of cash and the places that they store it … it’s a scary thing.”
A safety matter
Why scary? Perhaps an obvious answer: Transporting and storing large quantities of cash on a daily basis creates a safety risk for marijuana growers, processors and retailers, as well as the public.
In addition, operating strictly in cash makes the cannabis industry harder for the state to track — and thus, riper for money laundering.
And since the federal government says grass and guns don’t mix, people who work in cannabis and may be targets for robberies can’t possess firearms for protection.
“You’ve got $300,000 in cash and you can’t protect yourself?” Nelson said. “They are prohibited from having any type of protections, firearms, specifically, as they cruise around.”
This, Nelson said, is why state regulations prohibit cannabis businesses from broadcasting their company names on their vehicles.
“(Criminals) would be like, ‘huh, either there’s weed or cash in there, so I better go get that,’” he added.
To that end, Mallory French, manager of RISE dispensary in Spanish Springs, said not having a banking system is the “biggest challenge” of working in the Nevada cannabis market.
“It makes it difficult to pay bills, and it’s a safety risk having a lot of cash in your building,” French said.
She noted that, since RISE — which also has a dispensary in Carson City — has only been selling recreational products since January 2018, they are able to put most of their cash right back into the business.
“We haven’t been operating as long as other dispensaries,” she said. “A lot of others have cash sitting around, so that definitely makes it a security issue.”
Andrew Koetting, general manager of Sierra Well, which has a dispensary in Reno and Carson City, agrees.
“The cash nature is one that puts an additional strain, both from a management and safety perspective,” Koetting said. “So that’s certainly something (a banking system) that we can always hope for.
“I think it’s going to require a little bit more in the way of reform on a bigger level than just the state level for that to happen.”
Bank doors not budging
The Federal Reserve, however, appears to be in no hurry to let federal banks take money from cannabis businesses.
Just recently, on June 13, a congressional committee rejected a measure that would have prevented the government from punishing a bank that opens accounts for marijuana companies.
Quite simply, despite the fact that a growing number of states have legalized marijuana for recreational or medical use, financial institutions have remained reluctant to service cannabis businesses that still are considered federally illegal.
The lack of cannabis banking in the United States is primarily due to the Bank Secrecy Act of 1970. In a nutshell, the law seeks to prevent money laundering and other financial crimes.
As of March 2018, however, there are 411 commercial banks and credit unions in the U.S. operating accounts for “marijuana-related business,” according to the U.S. Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN).
In Nevada, since a lot of financial institutions work with state casinos, which are not marijuana-friendly, most banks “don’t even want to talk to” people in cannabis, said Will Adler, director of the Sierra Cannabis Coalition.
In March, the Nevada Gaming Policy Committee doubled down on distancing itself from marijuana, adopting a resolution that prohibits any collaboration between the sectors of legal cannabis and legal gaming.
“Banks don’t like marijuana cash,” Adler said. “We live in a gaming state. The gaming control board has said, ‘do not go anywhere near a casino with marijuana cash.’
“So there’s a lot of extra hours, headaches and employee time spent manually doing something that almost every business on earth can just digitally transfer to a bank account or credit card.”
“We did a lot of very, very difficult evaluation over a very, very short amount of time and just concluded that this was the right thing for the company at large.”