North Coast’s cash-fueled cannabis commerce faces banking crisis

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A swift bank teller might count cannabis-industry cash at 120 bills a minute. An electronic smart safe from San Francisco-based Union Bank hooked to a high-capacity feeder gobbles 800 bank notes a minute. In 20s, that amounts to $16,000 a minute or nearly $1 million an hour.

Counting cash fast matters, now that cannabis is legal for adult use in California and local and state government agencies will collect millions of dollars in taxes on a multibillion-dollar industry. Santa Rosa sits at the heart of CannaCom Valley, the North Bay’s emerging home for cannabis commerce.

CannaCom Valley business leaders and government officials in the Cannabis Banking Working Group met on May 4 in Santa Rosa to hear from banking executives and entrepreneurs how to manage cannabis cash. It’s a complex problem that makes bankers cringe as they contemplate huge business potential along with possible technology solutions.


The group was organized by John Chiang, California’s treasurer. Because cannabis remains illegal under the federal Controlled Substances Act, most bankers refuse cannabis cash as if it were toxic. A bank that accepts deposits of huge wads of cash inevitably draws scrutiny from federal regulators eager to shut down money laundering or other financial crime.

Union Bank, with headquarters in San Francisco and North Bay branches in Sonoma, Mill Valley, San Rafael, Tiburon and Vallejo, sees a high-tech way to bank cannabis revenue with smart safes, said Jay Goldstone, managing director of public finance. The bank has about 400 branches in California, Oregon and Washington, states where voters approved legal medicinal and adult-use cannabis. Union Bank is owned by Bank of Tokyo-Mitsubishi UFJ.

Union Bank initially rejected any connection to the cannabis industry. Then the bank explored “smart safes” from outside vendors that provide an electronic safe on the premises of a tax-collection agency or dispensary.


A smart safe reports deposits in detail and can connect to smartphones, said Steven Wildemuth, Union Bank’s managing director of payable and receivable products, validates U.S. currency. The safes were developed to manage cash at food companies and gas stations.

Cash stored in safes is picked up by an armored-transport company such as GardaWorld, Loomis, Brink’s or Dunbar. Dispensary employees would have no access to the safe. Only transport-company employees can open it. Daily deposits are credited on the day of deposit to a checking account in the bank.

“It reduces internal theft,” Goldstone said.

The bank is working with clients in southern California to set up the system, he said.

A smart safe, compared with a human teller, counts faster and validates the authenticity of each bill to detect counterfeits. Bills go into 1,200-note cassettes that each hold about $20,000. Smart safes, with steel walls a quarter-inch thick, can be bolted to a cannabis-dispensary floor.

Texas-based Tidel makes smart safes. Tidel started as part of Dallas-based Southland Corporation, which operated 7-Eleven stores. The chain is now owned by Seven & I Holdings Co. in Tokyo.


While Union Bank considers technology to handle cannabis cash, some bankers worry about any cannabis connection.

James Brush is CEO and president of Santa Rosa-based Summit State Bank, with branches in Santa Rosa, Petaluma, Rohnert Park and Healdsburg, and assets of nearly half a billion dollars.

“Personally, I’m glad that marijuana has been legalized,” Brush said. “I see a bright future for it.”

But in his role as bank executive, Brush takes a different stance. He predicts that cash will remain the primary form of transaction in CannaCom Valley.

“Cannabis is an illegal substance” under federal law, he said.

Banks rely on the Federal Deposit Insurance Corp. for depositor insurance and face federal scrutiny and regulation.

“We don’t bank cannabis,” Brush said. “Then it gets really interesting. What if you have a commercial building and there’s a grower in there? Do you bank that? What if you had a borrower who has a loan with you” then that borrower changes business course and jumps into cannabis commerce, Brush said. “That issue is going to be huge.”

The Financial Crimes Enforcement Network, under the U.S. Department of the Treasury, aims to curb money-laundering. The office conducts active enforcement. For example, in February the financial-crimes network assessed a $7 million penalty against Merchants Bank of California, based in Carson, for violations of the Bank Secrecy Act, in this case unrelated to cannabis business. The bank is regulated by the federal Comptroller of the Currency.

Merchants Bank “allowed billions of dollars to flow through the U.S. financial system without effective monitoring to adequately detect and report suspicious activity,” according to the network.

Such enforcement, which could apply to pot transactions, stirs fear in bank executives.

“We’re in a quandary,” Brush said about cannabis commerce. “We’ll probably call the regulators. This is going to be big,” such as “an irrigation-supply house that has been in business for years. Last year their business grew from $1 million to $2 million, all of that in cash. How can we say that that’s not primarily cannabis business? What do we do about it? What if it’s a new business that says it’s going to be all in cash?”

Currently, Summit State Bank would ask a cannabis-commerce customer to close its account at the bank and go elsewhere. The bank questions any business customer that brings in loads of cash.

“We are heavily regulated,” Brush said. Under the Bank Secrecy Act, “we look for illegal activity, terrorist activity, money laundering. We have a responsibility as a member of the FDIC, insured by them, that we don’t aid and abet criminal activity. As long as this substance is illegal, it’s not a state issue. It’s a national issue.”

The county of Sonoma rents the fairgrounds for a cannabis-industry conference and will soon collect fees and taxes on cultivation in unincorporated areas.

“Are we going to do business with the county of Sonoma? We are discussing that,” Brush said of the banking crunch. “We are not comfortable with it.”


Kirk Anderson is chief operations officer of CannaCraft, the largest cannabis business in CannaCom Valley, with a huge campus under development in southwest Santa Rosa’s Northpoint Business Park where the company plans cultivation, processing, cannabinoid extraction, edibles manufacturing, transport and distribution of cannabis products. The company expects to triple in size with up to 500 employees and revenue of $100 million or more.

Anderson is the brother of Darius Anderson, managing partner of Sonoma Media Investments, which owns the Santa Rosa Press Democrat and North Bay Business Journal.

Anderson noted challenges of managing a large business with its finances anchored in cash, including payroll.

“From a banking perspective, lost productivity is a huge issue,” Anderson said. “I’m amazed the industry has done as well as it has to this point — with all the headwinds — how to do things in a cash-based world.”


The gusher of cash generated by cannabis commerce in California can be treated the way it is in other cash business, such as restaurants, laundromats and convenience stores. Blue Line Protection Group, a Denver-based cash-transport business, expects to move nearly $300 million in cash for the Colorado cannabis industry, according to Ricky Bennett, the company’s chief operations and compliance officer.

“There is a need to protect it and ensure it is safely deposited,” Bennett said. “We’re talking millions of dollars of cash each and every day.”

Cannabis businesses will pay local and state fees for permits, sales taxes to the Board of Equalization, employment taxes to the Employment Development Department as well as state and federal income taxes. All these agencies will reckon with an influx of cannabis cash.

Blue Line is paid by financial institutions that accept cash from businesses in the cannabis industry.

Lamine Zarrad worked in the Office of the Comptroller of the Currency, a federal agency that regulates banks. Last year he founded Tokken, a Denver-based mobile-banking platform that harnessed technology underlying Bitcoin to allow electronic payments in the cannabis industry. The company uses the federal Automated Clearing House, the main system for transfer of money electronically, including credit cards and debit cards, among banks and the Federal Reserve.

Tokken’s app runs on a smartphone and allows money to move from a cannabis customer’s payment card or bank account to Tokken, which has subaccounts for dispensaries. Using blockchain-ledger technology, the company uses encryption — a cryptographic hashed record — to verify the validity of transaction data. The goal is to manage risk while facilitating exchanges of cannabis funds.

“The blockchain is the parent of Bitcoin transactions,” Zarrad said. “Everything in our system is also recorded in the public blockchain in an encrypted fashion. An auditor, a law-enforcement agency” can use the technology to verify the legitimacy of transactions.

Because transactions are recorded on numerous servers around the world, they cannot be altered in attempts at fraud, he said.

“It creates end-to-end control for every transaction,” Zarrad said, tracking each consumer’s transactions. “We know everything about a business on our platform,” he said, cross-checking individuals and companies with watch lists and social-media data to ferret out crime or terrorism.

Japan leads the United States in blockchain adoption. A consortium of Japanese banks is creating a blockchain platform for Japanese banks, likely based on Ripple, a fintech startup backed by Google. In March, Japanese banks ran a test of the Ripple platform.

Bank of America joined a Global Payments Steering Group in September to examine cryptocurrency transactions.

While bankers explore digital transactions, CannaCom Valley hurtles toward adult-use commerce, with permitting expected by January 2018. The industry still runs almost entirely on cash.

James Dunn covers technology, biotech, law, the food industry, cannabis, and banking and finance. Reach him at or 707-521-4257