The Real Cost Of Running A Business In Cash
It might be free, but there are risks.
Contrary to popular belief, legal cannabis operators do have access to FDIC-insured banking services, including checking accounts, interest-earning accounts, armored car cash pick-up, and fairly priced installment loans.
FinCEN itself has provided some guidance on how to bank cannabis, and the Department of Justice (through the Cole Memo priorities) specifically stated that prosecuting state-legal cannabis operators is not a priority.
Despite having access to financial services, however, many cannabis businesses have yet to engage with the traditional banking system. Some owners are misinformed about their options, while others choose to continue operating entirely in cash, often citing the associated banking fees as a deterrent.
The real costs
It’s true that running a cash-only business doesn’t come with a formal price tag, but it does have two significant costs.
1. Public safety
The biggest price of operating in cash is the security threat it poses. Having tens of thousands of dollars (or more!) on hand puts not just innocent employees and customers at risk of falling victim to crime, but the surrounding community as well. Too much cash lying around also entices less scrupulous employees to steal, which unfortunately represents some 90 percent of theft.
Remove the cash and you remove both the danger and the temptation.
Many cannabis businesses dedicate hours to counting currency every day, sometimes paying two or three employees to count it twice to make sure the tally is accurate. That’s a lot of time that could be dedicated to more productive activities. Cash-only operators also run around town gobbling up pre-paid debit cards in small amounts to pay utility bills and cover basic office expenses electronically. (Try buying a single pre-paid debit card for $10,000 and see what happens.) Some literally spend an entire day—multiple times a month—driving from convenience store to convenience store in search of pre-paid debit cards. More hours wasted.
Cash-only operators also need to pay their employees in cash. That means preparing not just one but two stacks of bills for each employee: one for wages, and one for payroll taxes—every payday. Businesses must then provide employees with documentation surrounding those payroll taxes, which can easily turn into an accounting nightmare rife with inaccuracies.
Then there’s the issue of the businesses themselves having to pay taxes, which usually entails lugging duffle bags stuffed with bills to a city hall that is often miles—if not tens of miles—away. That’s followed by a wait in line to hand over the money before the drive back.
When a cash-only cannabis operator wants to expand, how will it raise funds if investors have no way to send it to them other than dropping off a briefcase? And will investors recoup their investments in an equally inconvenient way? Too many headaches for investors usually means…no investors.
The big picture
If time is money, cash-only cannabis operators are spending a lot of it. They are also inadvertently jeopardizing the safety of their communities. Transparently engaging with the banking system solves both problems by dramatically improving operational inefficiency and public safety.
Operating in cash may be free, but that doesn’t mean it’s not expensive.