Few Banks, Credit Cards Want Marijuana Industry Business

May 18, 2015 by Paul Ausick

Even though marijuana sales are legal to one degree or another in two dozen states, the business remains primarily a cash-based one in which a buyer has to visit a physical location to make a purchase and the seller has no place to put the cash because most banks will not accept it.

The country’s biggest banks, like JPMorgan and Wells Fargo, will not accept deposits from businesses involved in the marijuana business, saying that because marijuana sales remain in violation of federal law they will not take the chance. Smaller banks have tried to serve marijuana businesses, but they have run up against high reporting requirements and regulatory expenses.

The U.S. Treasury has followed the lead of the U.S. Department of Justice, which has adopted a policy of looking the other way in states where marijuana sales are legal as long as the sales do not set off alarms such selling cannabis to children or diverting cash to organized crime. The Treasury Department’s Financial Crimes Enforcement Network (FinCEN) has even come up with a work-around for businesses in states where cannabis sales are legal, but as of last week fewer than 200 U.S. banks and credit unions are accepting cash from marijuana-related businesses.

Which raises the issue of credit card sales in states where cannabis is legal. Like the big banks, big credit card companies like Visa and MasterCard do not want to run afoul of any federal laws, and transaction processing companies are likewise not interested in credit or debit card transactions. Not being able to accept credit cards contributes to the piles of cash that marijuana-related businesses are building.

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At least one marijuana-related company, OSL Holdings, says it may use some of a recent injection of $2.8 million in working capital to fund the “finalization of OSLs technology project that includes search, ad and mobile payment solutions for the cannabis sector.” In an announcement of its recent recapitalization the company, which trades over-the-counter under the symbol OSLH, identifies itself as a development and technology company “specializing in affluent, liberal and libertarian markets with high disposable income, with a mission to advance civil liberties through the power of commerce.”

The company definitely has its work cut out for it. A mobile payment solution for the cannabis industry at this point would have to include a banking institution of some sort, and the federal bar on cannabis sales that is now in place makes that a dicey proposition.

OSL Holdings did not appear on a list of the 10 most important companies in the marijuana industry that we published in March. We also note a word of caution for those who need to be reminded about private investing and the many pitfalls that can occur when investing in non-controversial fields. The Securities and Exchange Commission cautioned investors back in May of 2014 about the potential for fraud in microcap companies that claim their operations relate to the marijuana industry.

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