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There are winds of change blowing through Washington, D.C. They have carried from as far west as the tip of Washington and they smell like marijuana. President Obama’s comments to the New Yorker about one week ago, showed the Commander in Chief’s approval of marijuana laws moving forward in the country. Attorney General Eric Holder last week said that there are going to be changes made in regulations to provide marijuana companies access to the banking systems that they are currently denied.
Because marijuana is still illegal at a federal level and classified as a Schedule I drug, alongside heroin and LSD, banks have steered clear of accepting deposits from cannabis businesses for fear that they could draw regulatory scrutiny and prosecution for possible aiding and abetting drug trafficking or money laundering. Simply, it doesn’t matter that 20 states have passed laws legalizing marijuana in one form or another; there is a conflict with federal law, which denies companies equal access to the banking system. Bank of America (BAC) , the country’s biggest bank, said that it began turning away services to marijuana companies in early 2008 after a warning from the Drug Enforcement Administration about the potential risks. By 2011, there were essentially no banking options for those in the marijuana business.
Business Constraints on Marijuana Companies as Legalization Debate Proceeds
Without the ability to open bank accounts, get credit cards or loans, the marijuana business is effectively hamstringed by all-cash operations. In addition to creating an unleveled playing field for business development, the policy aligns those businesses as targets for robberies, albeit for their cash, pot, or both.
Holder says that the policymakers are working with the Treasury Department to come up with legislation to correct the banking bias against legitimate marijuana companies with the expectation of changes coming “very soon.”
There have been an increased number of robberies associated with the marijuana industry in the past few years since legal marijuana laws started making their way across the nation, a fact that gives opponents of the laws an “I told you so” moment, but it should be somewhat kept in perspective. For starters, the cash-on-hand issue arguably leaves cannabis companies vulnerable to possible attacks. Second, there are a whole lot more dispensaries now than ever before (about 3,200 in Colorado and California alone), meaning that it is a bit of a numbers game that can be manipulated to the suitor to show increased crime while finger pointing at the marijuana industry.
A report from the D.C.-based Marijuana Policy Project showed that banks and liquor stores in Denver during 2009 were still the favorite targets for heists. In the report, MPP also cites a comprehensive analysis by UCLA (funded by the National Institute on Drug Abuse) on the correlation between crime and concentration of dispensaries that concluded the “results suggest that the density of [medical marijuana dispensaries] may not be associated with increased crime rates or that measures dispensaries take to reduce crime (i.e., doormen, video cameras) may increase guardianship, such that it deters possible motivated offenders.”
All things considered, let’s just say that the vote is not really in yet on changes in crime rates directly related to the nascent marijuana industry until there is uniform policy across the country and a more lengthy time to calculate a library of statistics.
DEA and the Safety of the Marijuana Business
In the same fold, Medical Marijuana, Inc. (MJNA) said on Tuesday that it has made plans to address the need for tight security in the burgeoning industry. The San Diego-based company’s wholly-owned subsidiary, Wellness Managed Services, has partnered with MPS Security, the security branch of National Business Investigators, with intentions to launch a new company called MPS International as the nation’s first security and armored transport service provider to the cannabis industry. The new company will focus on retail and grow operations, inventory and revenue transport, compliance oversight and workplace protection in states where marijuana use is legal. According to MJNA, MPS International is also pursuing acquisitions or partnerships to provide access control and closed caption television services to meet government regulations mandating that enforcement agencies have unrestricted access to live and recorded video of cannabis operations.
In addition to static security at facilities, MPI International is looking to capitalize on secure money and product transport, an industry that has the potential to grow to tremendous scale as the nation continues to enact new marijuana legislation. "Large amounts of product will be moved from grow to wholesaler, warehouse, testing facilities, bakeries, infusion laboratories and finally to retail locations,” Mike Roberts, CEO of MPS International, in a statement today.
Not to show any preference (I own no shares of MJNA), but an established security firm combined with an expert in the marijuana business is a compelling combination. With regards to exclusively money transport, there is likely an advantage over companies like Brink’s (BCO) because of industry specialization, but the gap seems to be to a lesser extent from that angle. Of course, Brink’s and other security firms could seek partnerships as well to boost their offerings directed at the marijuana business. A one-stop shop and complete package to cover a full gamut of compliance, security and transportation, as MPI International is suggesting it will offer, is a prescient move to stay ahead of the game.
That being said, General Attorney Holder should publicly address the stance of the DEA, an arm of Holder’s Department of Justice, on armored car companies transporting cash for cannabis companies. In August, news surfaced that the DEA had told security and armored car companies to stop servicing the marijuana industry. A few weeks later, though, Deputy Attorney General James Cole said that was absolutely not true; the DEA was merely querying about the practices of armored car companies within the industry and that no guidance was provided at that time. Given any lingering implications, a simple reiteration of policy would lend clarity to the situation.
Blurry Lines as Legitimacy Awaits
It’s interesting that MPI’s Roberts makes reference to the transport business. By large, this is in an area with massive potential, yet it goes with very little discussion about the regulatory environment. If there is concern about security at dispensaries and manufacturing facilities, then it certainly should be amplified as it relates to transport, given the sheer magnitude of marijuana that could be hauled by trucks to a litany of destinations. Documenting the movement of the product and keeping these vehicles and their operators safe on the open road is paramount as the criminal element could wreak havoc in the public. Security is essential and appropriate laws need to be set in stone.
There are also questions about the route to be taken by transport vehicles. Products that contain the marijuana constituent tetrahydrocannabinol, or THC as its generally called, cannot legally be transported across state lines. In many instances, county laws within states where pot is legal do not allow for transportation of products containing THC within those districts.
As Capitol Hill irons out all the details, uniformity will ultimately happen. The rapid ascent of the marijuana industry has been a moving target of developments requiring legislation and bipartisan agreements at multiple levels, but it seems to be happening. The paradigm-shifting movement to legalize marijuana is about much more than “hippies wanting to get high,” as some opponents sporting horse blinders would like the world to think. Of particular note, there are countless medicinal benefits stemming from marijuana constituents that can be a bridge to life altering new therapeutics. Simply, our nation is not walking off a precipice with the legalization, but once the proper legislation is in place, simply into a new era of opportunity. Now let’s just get the laws straight.