- © Jose Luis Soriano De Vicente | dreamstime.com
Back in the days of prohibition — cannabis, not booze — a half-gram nickel bag would cost you five bucks on the black market, usually leaving you uncertain of what you just bought. But now that approximately 4,600 Vermont patients can legally access one of the state's five medical marijuana dispensaries and safely purchase cannabis to treat chronic and debilitating conditions, such as AIDS, cancer, multiple sclerosis and Parkinson's disease, those financial transactions have become more complicated. Why?
Essentially, because the federal government still considers them illicit drug deals.
Last month, we received an email from a Chittenden County medical marijuana patient. The woman, who is registered with the Champlain Valley Dispensary, requested anonymity to protect her medical privacy. She was irked that, in addition to the state's $50 annual registration fee, she is also assessed a 1 percent surcharge on every cannabis purchase, regardless of whether she pays with cash, check or debit card.
"Before, debit card fees were passed on. I understand that," she wrote. "But to hand them cash for a product, and then extra cash to figure out what to do with the cash I paid for the product, seems really exploitative."
Jeffrey Wallin, director of the Vermont Crime Information Center, which oversees the medical marijuana registry, confirmed that any additional fees charged to patients are assessed by the dispensaries themselves, not the state. Under Vermont statute, medical cannabis is exempt from state and local sales and use taxes.
So why the 1 percent fee? Shayne Lynne is executive director of Champlain Valley Dispensary and Southern Vermont Wellness, which have three locations in South Burlington, Middlebury and Brattleboro that collectively serve about 3,200 patients. As he explained in an interview and subsequent emails, in November 2019 the dispensaries began assessing a "banking surcharge" on every transaction, which enables them to bank with a Vermont financial institution.
How many banks and credit unions did Lynn approach before finding one that would allow him to open an account? All of them, he said.
"We need a bank account to operate for all different kinds of reasons, one of them being safety," he added, referring to the large amounts of cash that dispensaries handle. Bank accounts are also vital for handling the dispensaries' payroll, income taxes and other business transactions.
Financial institutions that choose to do business with the cannabis industry — most do not — must strike a delicate balance between state and federal laws. Because marijuana is still listed as a Schedule I drug under the federal Controlled Substances Act, banks and credit unions run the risk of losing their charters if they cannot verify to regulators that cannabusiness accounts are not being used for money laundering.
The banking industry's concern about potential exposure to federal prosecution was heightened in January 2018 when president Donald Trump's then-attorney general, Jeff Sessions, rescinded the so-called Cole Memorandum. That 2013 memo, written by then-deputy attorney general James Cole under president Barack Obama, directed federal prosecutors not to prosecute marijuana offenses in states that had legalized medical and/or adult-use cannabis.
In order to minimize its exposure to federal racketeering charges, Lynn explained, the financial institution he works with — Vermont State Employees Credit Union — has a contract with a Denver, Colo., data-collection firm called NCS Analytics. NCS serves as a third-party auditor, sifting through all the dispensaries' transactions to alert bankers and regulators of any suspicious activity. To cover this and other due-diligence expenses as required by the federal and state governments, VSECU charges the dispensary a standard 1 percent fee on its total monthly deposits.
Lynn couldn't say how the state's other dispensaries share that cost with their patients, but he insisted that all are subject to the same banking rules.
There are other quirks to doing business in the legally gray area of the cannabis world. For one, other health-related items, such as dentures, hearing aids, contact lenses and bathroom commodes, are classified as "medical devices" and thus are tax exempt. But non-cannabis items sold in dispensaries — pipes, vaporizers, grinders, rolling papers — that help alleviate the suffering of terminal and chronically ill patients are still classified as "drug paraphernalia" and are taxed.
Also, when dispensaries accept debit card payments — national credit card companies still won't touch the transactions — dispensaries are required to round up or down to the nearest whole-dollar figure.
Some of these rules are likely to change under President Joe Biden's administration. In 2019, the U.S. House of Representatives passed the Secure and Fair Enforcement Banking Act, which would ease many of the financial restrictions on the U.S. cannabis industry. The bill is expected to get a warmer reception in the new, Democrat-controlled U.S. Senate, where it has yet to pass.
Last March, as the pandemic forced the closure of many businesses, dispensaries were deemed "essential services," permitted to remain open and even allowed to deliver their goods to patients' cars to minimize coronavirus exposure.
That wasn't a difficult adaptation for Southern Vermont Wellness in Brattleboro. As Lynn pointed out, it's located in a former TD Bank building, which features a drive-through window and still-functional pneumatic tubes.
That's one way to keep them rolling in the green.
Correction, January 21, 2021: An earlier version of this story misstated how the Vermont State Employees Credit Union assesses fees on medical marijuana dispensaries. A 1 percent fee is assessed on the dispensary’s total monthly deposits.