LANSING, MI - It was chilly on the morning of Dec. 15., but Michigan State Police stood outside a state office building. They were there for safety, ready, as the Bureau of Medical Marihuana Regulation opened its doors, for some applicants to show up with the $6,000 application fee in cash.

Michigan lawmakers authorized a new medical marijuana industry in 2016, and the state began accepting applications to be a part of it on Dec. 15, 2017. But businesses seeking inclusion are already running into a roadblock: banks won't take their money.

"It's not that banks don't want to. It becomes a very significant risk," said Patricia Herndon, senior vice president of government affairs for the Michigan Bankers Association.

Federally, marijuana is considered a Schedule I substance, a category that means the government considers it to have no medical use and a high potential for addiction. The revenue from a state-authorized medical or recreational marijuana business can potentially be viewed as drug money by the federal government.

In Michigan, medical marijuana is legal and its industry is projected to expand rapidly. A House Fiscal Agency analysis of the bill lawmakers approved projected it would grow to $837 million annually. As of Feb. 2 there were already 146 businesses who have submitted prequalifications with the Bureau of Medical Marijuana Regulation, and another 618 had started the online application process.

But without being able to rely on basic banking services, those medical marijuana business owners are struggling with how to remain above-board.

Paul Samways, an accountant with Cannabis Accounting, said he's currently going out to clients to count their cash. And when the businesses start operating under the new scheme, it only gets more complicated if they can't cut checks or store money.

"These guys aren't hiding stuff in their mattress, they want to be above-board, they want to make sure everybody knows what's going on, they want to pay their taxes... how do you do it without a bank account?" Samways asked.

Banks shy away from marijuana money

Acting as a bank for a medical marijuana business was a thorny issue to begin with, and one that's gotten more difficult in wake of a memo issued by U.S. Attorney General Jeff Sessions last month.

Banks that want to handle medical marijuana business money have to do a lot of due diligence at a high upfront cost to ensure compliance with the Bank Secrecy Act and anti-money laundering rules, Herndon said.

But on Jan. 4, Sessions repealed an Obama-era policy known as the Cole memo, which instructed federal prosecutors since 2013 not to prioritize the enforcement of federal anti-marijuana laws in some instances where states had their own marijuana laws on the books. Now, federal prosecutors are using their discretion on the enforcement of federal marijuana laws.

"That rescission adds even greater uncertainty to this," Herndon said. "I will say that they continue to look at this, there's been no declaration from the U.S. district attorney that there's going to be an active force in that direction."

Before that move, there had been an uptick nationally in banks serving the medical marijuana industry. According to a report from the federal Financial Crimes Enforcement Network, 400 financial institutions were banking with marijuana businesses in September of 2017, which represented steady growth.

And some states have found ways around needing buy-in from financial institutions. In Hawaii, state officials collaborated with a cashless service called CanPay and Safe Harbor Private Banking, a marijuana-specific financial institution, to let medical marijuana businesses handle transactions.

In Maryland and Florida, banks have quietly popped up to fill the void.

But Florida's bank is backing out now. With Michigan's industry coming online at the same time banks are grappling with the Sessions memo, it's not clear any financial institutions will rush to fill the void.

Samways looked into the possibility of starting a state-chartered credit union that would accept medical marijuana money a few years ago. The problem he ran into, he said, was that he couldn't get a master account in the federal reserve without compromising the medical marijuana money.

"What happens is if you don't have a federal reserve master account, you can't cash checks or take debit cards or transfer money into the money super-highway," he said.

As of now, Herndon said, no Michigan bank has publicly come forward as accepting medical marijuana money.

Lawmakers look for solutions

Rep. Klint Kesto, R-Commerce Twp., is the sponsor of House Bill 5144, which was signed into law last month. It makes several refinements to the medical marijuana law the state passed in December of 2016. Among the changes, it specifies that an accountant or financial institution providing services to someone licensed under the Medical Marihuana Act wouldn't be subject to penalties.

Kesto said the intent was not to hold banks accountable for providing somebody with their banking records.

"Because in order to apply for a license you have to go and get your banking records. So if you went to the teller or the clerk or whoever was going to assist you, then we don't want to subject them to any criminal laws that then may be out there. We specifically codify that," Kesto said.

The same idea applies to certified public accountants, he said.

To apply for a license to be a medical marijuana grower, processer, tester, transporter or dispensary, applicants have to prove they meet a capital requirement, which is often dependent on financial records. It's CPAs who provide an attestation that applicants have met those requirements.

And that's just for the application process. But when marijuana businesses actually start pulling in money, they'll run into another problem, one Kesto acknowledges. Where are they supposed to store it?

"I think that it makes a lot of people nervous. I bet the people who have to hold that cash are nervous, because that makes them a target as well," Kesto said. "Law enforcement is probably nervous because they have to enforce the laws if there's theft, or robberies, or what have you. So I think that we have to be cognizant of that."

Rep. Pete Lucido, R-Shelby Twp., is looking to answer that with House Joint Resolution CC, which would create a state bank capable of handling money from marijuana businesses. Without some kind of solution, he said, Michigan would have a huge industry that basically lacked the ability to put its revenue back into the economy. Right now, he said, people could get stuck keeping it in mattresses and coffee cans.

"What other safe harbor do we have? If the banks can't touch the proceeds and the credit unions can't touch the proceeds from the sale of marijuana, then what do we leave those that are in the business that are regulated by the state as it relates to licensing? Even the labs that test it would be barred from putting the proceeds into the bank or credit union because it violates federal law," Lucido said.

So far, Lucido said, South Dakota is the only other state with a state bank. South Dakonta authorized it close to 100 years ago and don't have medical marijuana. But Michigan has a chance to open their own and be a leader, he said.

He doesn't necessarily think a state bank competing with private banking services is a good idea. But right now, it's what he's got.

"I would surely think that if the banking industry and credit union industry have an alternative, they can sure knock on my door and give it to me," Lucido said.

Magnitude of problem could grow with legalization

Try as state lawmakers might, it's not clear that they have the power to address the issue, at least through regular banks.

"Very little can be done at this point, at the state level, to impact the prohibitions and the obstacles that are put into place that are keeping us from jumping into this," Herndon said.

Right now the state's talking about a potentially $837 million medical marijuana industry with banking issues. But if a ballot initiative to legalize recreational marijuana for adult use passes, even more businesses and more dollars could have trouble accessing traditional banking systems.

Josh Hovey, a spokesperson for the Coalition to Regulate Marijuana Like Alcohol, the group pushing for legalization, said based off what other states have experienced, "We're thinking that once the market is fully established that Michigan could be generating anywhere from $100 million to $200 million a year in tax revenue."

That's a lot of money to think about collecting from a cash-only business. But he's hopeful Congress will broker a federal solution.

"I think it's something that Congress is starting to look at and realizing that there's a whole lot of money out there that the IRS needs to be collecting, that state governments need to be collecting," Hovey said.

But absent that - or any potential state action - Michigan's marijuana industry will likely be a cash one.