Oklahoma’s adoption of medical marijuana will be green in more ways than one: Retail dispensaries, processors, growing operations and tax agencies will have to work within a cash-only industry.

With marijuana still illegal at the federal level, businesses involved in medical marijuana won’t have easy access to the federal banking system to move money around. Customers will have to pay in cash at dispensaries and can’t write checks. Employees won’t be able to use direct deposit, instead getting paid in cash. Monthly excise tax remittances will have to be taken in cash to the Oklahoma Tax Commission’s offices in Oklahoma City.

The cash-only marijuana market will raise a host of complications up and down the product’s supply chain – in an economy that continues to move steadily away from paying with paper bills and coins. Payroll will be an issue. Cash at every level could become a tempting target for criminals.

The problems are familiar in other states that have legalized medical or recreational marijuana.

Banking issues have remained in the background as state regulators have had a rocky start in implementing State Question 788. The Oklahoma Medical Marijuana Authority, under the Oklahoma State Department of Health, is supposed to start accepting applications for medical marijuana licenses by Aug. 25.

Recently, the state Board of Health revoked its controversial emergency rules that banned smokable forms of medical marijuana and required a registered pharmacist at dispensaries. It approved a narrower set of rules based on advice from the attorney general’s office, although two lawsuits remain arguing the Board of Health overstepped its bounds.

Federal banking laws that prevent money laundering and ensure bank secrecy hinder marijuana businesses in the 30 states and the District of Columbia that that have approved medical cannabis. Because marijuana is classified as a Schedule 1 drug under the Controlled Substances Act, with the highest category for potential abuse, it’s illegal for banks to deal with the proceeds of any type of marijuana business. Any violators are subject to criminal and administrative sanctions.

“Banks naturally want to steer away from anything that might even just questionably lead to money laundering allegations, so that means they won’t let you deposit your funds,” said Chris Odinet, a University of Oklahoma law professor who teaches real estate and banking law. “That means no access to credit card services, payment services or payroll for employees. In some states where this has been legal, like Colorado and California, employees are being paid in cash and customers have to pay for everything in cash.”

There are limited exceptions for providing banking services to marijuana-related businesses under the Treasury Department’s Financial Crimes Enforcement Network. Nationwide, about 400 banks and credit unions provide some limited services to marijuana businesses. Among them is Salal Credit Union in Seattle, which has about 40,000 members and cannabis industry customers in Washington and Oregon.

Salal started its cannabis banking services in 2014 and vets customers to make sure they have business experience, said Carmella Murphy Houston, Salal’s vice president of business services. Salal does not make start-up loans to marijuana businesses, though it will issue commercial real-estate loans to the firms. Salal charges higher banking fees to offset the costs of initial and ongoing compliance.

“We ask them if they have a business plan, pro forma financial statements and plans for best-, medium- and worst-case cash flow scenarios,” Murphy Houston said. “Just because someone has grown it in their basement doesn’t mean they can be successful in the business.”

The cash nature of the business has its drawbacks, she said. Visa and Mastercard won’t accept cannabis transactions because of federal marijuana laws. The two companies are known for their credit card brands, but their networks underpin debit and credit card transactions.

“It creates some challenges with storing and transporting cash,” Murphy Houston said. “We provide armored car service for cash pickups. We will allow small cash transactions at branches, but we require an armored car if they have more than $5,000 in cash per day.”

The Oklahoma Tax Commission is finalizing forms for medical marijuana businesses to submit monthly excise and sales taxes. The commission is also preparing to accept cash for those taxes but is waiting to see what other measures, like armored cars, might be needed to handle those payments, said spokeswoman Paula Ross. It’s unlikely the commission will have satellite locations across the state to accept cash tax payments, so businesses will need to come to its main offices in Oklahoma City.

Roger Beverage, president and CEO of the Oklahoma Bankers Association, said he doesn’t expect many Oklahoma banks to get into the medical marijuana business. The risks are too great and the regulatory scrutiny would be too onerous for most banks. Even if a bank is state-chartered, it would face hurdles, such as having to comply with federal money-laundering reports, he said.

Even so, the association recognizes bankers have lots of questions about the industry. It is presenting two sold-out seminars in Oklahoma City and Tulsa to members on Tuesday, Aug. 7, and Wed., Aug. 8.

Beverage said now that SQ 788 is the law, additional safeguards are needed to make sure businesses can bank safely.

“We’ve been asking our (Congressional) delegation to think about how to create a path forward that doesn’t bless the use of medical marijuana but does bless the ability to transact business with your customers,” Beverage said. “If you don’t do that, you have a significant public safety hazard because you literally have stacks and stacks of cash. Those stacks of cash are a very tempting target. Regardless of how you feel about the use of marijuana, that horse has left the barn. Now we’ve got to figure out how to get control of that horse.”

Conflicting federal guidance from the Treasury and Justice departments on marijuana-related businesses has led to proposed legislation in Congress. In June, Sen. Cory Gardner, a Colorado Republican, and Sen. Elizabeth Warren, a Massachusetts Democrat, introduced the STATES Act, or Strengthening the Tenth Amendment Through Entrusting States Act. It is intended to protect states and businesses where medical or recreational marijuana is legal.

The legislation, which has yet to find co-sponsors from Oklahoma’s congressional delegation, would amend the Controlled Substances Act to exempt most of its enforcement provisions for marijuana businesses operating in states in which medical or recreational marijuana is legal under state laws. On the financial side, it no longer classifies legal marijuana-related banking transactions as trafficking.

Bud Scott, executive director of New Health Solutions Oklahoma, said his group hopes to get more involved in the banking side of the business in the 2019 legislative session. Options include tweaking the state’s credit union laws or finding a way to facilitate “closed-loop” private lending to marijuana-related businesses. He said it could take a few years for the federal government to pass meaningful banking and marijuana reform.

“Private lending institutions here in Oklahoma are going to be incredibly hands-off on this until it’s addressed more clearly and succinctly at the federal level,” Scott said. “It’s an election year, so it’s going to be a while, but we need to come up with our own proactive solutions here.”

Reach reporter Paul Monies at pmonies@oklahomawatch.org.

Correction: A previous version of this story incorrectly reported that Salal Credit Union does not issue loans to marijuana-related businesses. Salal does offer commercial real estate loans, but not start-up loans, to such businesses.