The Internal Revenue Service is experiencing firsthand the problems that occur when a growing business cannot work with federal banks. For 33 US states and the District of Columbia, marijuana is a legal product and businesses are well on the way to capitalizing on these growing markets.

Those businesses, however, are not able to work with banks to get loans or protect their revenue. Instead, the businesses are forced to rely on cash to make payments and keep their business running. Those payments include the tax payments to the IRS on the revenue accumulated. In 2017, that meant the IRS saw around $4.7 million come in from cannabis-related businesses because of the $13 billion the businesses saw in revenue. That $4.7 million was paid in cash.

Currently, around 70% of cannabis businesses do not use banks in any way. Therefore, the cash payment is the only option when it comes to handling taxes and other business-related concerns. Payroll is also handled with cash.

The format for a payment from a cannabis-related business requires an appointment, a trip to a local office in person and the time and attention of two IRS employees at all times, from when the cash is dropped off to when it has been completely counted and entered into the IRS system as a payment made.

All of this is occurring while the IRS deals with 153.7 million tax returns, 16.2 million of which were paper filed. The handling of a paper filed tax return is roughly nine times as expensive as those that are filed electronically. Logically, this means the IRS is spending a lot to handle cash payments for taxes as well.

As recently as 2014, the IRS was handing out 10% penalties to those businesses that paid in cash. However, following a lawsuit, that policy was adjusted so that businesses that had attempted to open bank accounts were not penalized. The IRS does encourage businesses to pay by card, cheque, or an electronic deposit.

Some locations where cannabis is legal have seen financial institutions adjusting their purview on the relationship with cannabis-related businesses. For example, The Partner Colorado Credit Union in Denver allows its six branches to work with cannabis-related businesses. This has led to $160 million in revenue, since the 200 businesses that utilize their services are required to pay due diligence fees.

Salal Credit Union in Seattle, meanwhile, handles funds for over 500 businesses in the states of Washington and Oregon. The credit union’s vice president began considering the expansion when her son shared frustration over issues marijuana entrepreneurs were facing in regard to money management.

The market continues to expand, with revenue increasing in significant amounts each year. It seems apparent the IRS and marijuana-related businesses both are hoping to see more financial institutions take the plunge and find a way to help manage finances and protect the revenue of these businesses.

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