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Marijuana Security Business

Criminal Activity in a Legal Industry

Written by Joseph Cafariello
Posted May 1, 2013 at 3:44PM

Things would be a lot simpler for the legal marijuana industry in the United States if everyone went by the same law book.  But they don’t.  Federal law still deems marijuana use, growth, and distribution illegal, while individual states vary on their classifications of these things.

marijuana stocksIn many states, federal codes do not transition well with state codes.  It’s a sloppy mess of loose ends that don’t tie and gaps that don’t fill.  In these states, the legal marijuana industry is both Dr. Jekyll and Mr. Hyde at all times, and the companies trying to do business in it never really know which one they are dealing with most of the time.

That makes it more than just confusing.  It makes it downright dangerous.

Vulnerable to Crime

Criminal involvement has always been the main concern surrounding the legalization of marijuana.  By and large, the general public is fearful of increased crime—a point that is easy to see.

What is more difficult to see is that federal authorities are actually making it less safe for those engaging in this legal activity.  Many of the protections and services available to mainstream businesses are not available to marijuana vendors or growers because federal laws still deem the industry illegal.

The greatest protection any vendor has against crime—namely alternative payment options and security services—are out of the reach of marijuana vendors, putting them well within the reach of criminals.

Cash Baits Thieves

By far one of the greatest deterrents to robbery and theft are cash-less payment systems, where customers can pay for a vendor’s products or services using a debit or credit card.  Thieves most often have no way of redeeming them.

But the federal levels of the legal system have pressured banks to refuse credit card or debit card services to marijuana vendors.  Even in states that have legalized the medicinal use of the drug, vendors are forced to accept payment in cash only.

From CNNMoney:

“CNNMoney asked the nation’s largest retail banks with operations in Washington [State] about their policies for small marijuana businesses. HSBC didn’t respond. JPMorgan Chase [NYSE:JPM], U.S. Bancorp [NYSE:USB] and Wells Fargo [NYSE:WFC] said they don’t serve the industry, citing federal law. Bank of America [NYSE:BAC] didn't respond but has previously stated that it turned away marijuana-related business clients after warnings from the U.S. Drug Enforcement Administration five years ago.”

Because marijuana is not cheap (a single pound can sell for more than $2,000), vendors with a steady stream of clientele can have tens of thousands of dollars on their premises at any one time—all in cash.

And thieves can’t resist it.  CNNMoney recounts cars being driven through the walls of marijuana dispensaries, cat burglars cutting holes in roofs and repelling in, and even broad daylight raids by robbers clad in ninja gear.

Insecurity

“Well, that’s what security systems are for,” one might scoff.  Actually, no.  That is not what security systems are for at all.  The largest security companies across the nation are refusing to provide services to marijuana businesses, despite their legal status at the state level.

“Some store owners who use ADT, the nation’s largest security provider, say the company has dropped them in recent months. ADT told CNNMoney it won’t ‘sell security services to businesses engaged in the marijuana industry because it is still illegal under federal law,’” the news service quotes.

As a consequence, a typical marijuana dispensary can take the resemblance of a high security bank, complete with bullet-proof windows, reinforced concrete walls, trip-wired ceilings, and triple-gated entrances.

Smaller state-wide security companies are trying their best to move into the void vacated by the larger national providers, but they are having their wings clipped and their businesses fenced in.  Banks are making it just as hard on them as they are on the marijuana companies.

Once such company, Colorado-based Canna Security, has been forced to bank in cash as well, sending staff on bank runs with bags containing some $10,000 and more in bills.

Even more worrying to the company’s founder and CEO, Daniel Williams, is his bank’s refusal to grant a credit line, which the company needs to expand its business.

“I’m concerned that we’ll get too much business and won’t be able to manage it,” Williams explained to CNNMoney.  “It gets frustrating when I get a whole new channel of business and funding isn’t there to adjust to it.”

Driving Legitimate Business Underground

Yet the lost potential revenue is not limited to just local marijuana dispensaries or security providers. It's reaching banks and governments themselves.  The heavy pincers they use to block the marijuana industry is reaching back to pinch them on their own behinds.

By classifying the marijuana industry as illegal, the federal government has left itself with no legitimate claim on taxes.  It isn’t so much that a purely cash-based business is extremely difficult to audit.  It’s more that the government simply can’t collect taxes from businesses considered illegal, shooting themselves in their own back pocket.

For their part, the banks are forcing legitimate business owners to invent creative banking methods that some might consider as bordering on the fringes of an underground black market.

John Davis, the CEO of Seattle’s Northwest Patient Resource Center, has had to organize an investment holding company completely unrelated to his legal marijuana dispensary, into which he is forces to divert his legal marijuana sales just to get deposits by his bank’s tellers.

“Businesses have found ways to circumvent credit card processors,” adds CNNMoney.  “Some use Square, a point-of-sale device that works on tablets and smartphones. Others use debit card machines that look like credit card terminals but function like ATMs.”  “The pot industry will still face considerable incentive to dodge the law.”

Davis frankly calls it as he sees it—“Forces are conspiring to keep it in the black market.”

While rules and regulations are carefully designed to prevent black markets from forming, in medicinal marijuana’s case, they are actually causing black markets to flourish.  While federal and state governments attempt to squeeze criminals out of the underground economy with one hand, they are driving legitimate business owners into it with the other.

But money talks.  Sooner or later they will hear the sound of all those marijuana bills spinning through the money counters, and they will finally realize that a good cut of that money in taxes is worth rewriting a few lines of law.  Not to mention the added safety and security of business owners and entire sections of towns.

Joseph Cafariello

 

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