California is becoming the largest legal marijuana market in the nation. It’s estimated that the industry will bring in more than $1 billion in taxes every year.
But the people paying the taxes, and the expensive fees to keep up with regulatory requirements, are doing it all in cash, and often without insurance.
Because marijuana is illegal in the eyes of the federal government, those in the bud business can’t access the same financial safeguards other businesses take for granted. That’s keeping cannabis entrepreneurs stuck in the gray market.
Responsible, achieving stoners
Doug Dracup is at the Emerald Cup in Santa Rosa, showing off a strain of weed that smells like sour Kool Aid. It’s called “Oh Yeah,” because that’s what everyone says when they smell it.
The Emerald Cup is a competition to crown the finest outdoor-grown, organic cannabis. There’s also music, seminars, and lots of free samples. Dracup owns a high-end glass pipe company called Hitman Glass.
“My brand represents the responsible, productive, achieving stoner,” Dracup says. “For me, I’ve just been waiting my whole life to pay taxes on this shit and not be a criminal.
Dracup plays by California’s new rules for licensed cannabis businesses. But pot is still illegal under federal law, and banks are often federally regulated.
“I’ve been shut out of so many banks, just for selling pipes,” Dracup says.
So pot entrepreneurs deal in cash. Without a bank account, it’s hard to manage a payroll, get a mortgage, a loan, or a credit card.
“It's still gray area,” Dracup says. “It's going to be gray area for a few more years.”
Burnt cannabis and cash
The cash-only economy isn’t just frustrating and inconvenient. It’s also risky.
Without access to a bank account, Mendocino County cannabis farmer Ashley Oldham kept her cash in a safe under her house. When the Redwood Valley Fire blew through in October, her home and her savings went up in smoke.
“It's like literally a pile of ash and I can't, like, magic it to come back,” Oldham says.
Generations of cannabis farmers
Oldman is not giving up now. She’s a second-generation cannabis farmer, and this industry is all she knows.
“I was born into the cannabis industry, literally and physically,” Oldham says. “When my mom was pregnant with me she got arrested for cultivation and put in jail. So I did jail time in my mommy’s tummy for cannabis cultivation.”
Oldham grew her first marijuana plant when she was fifteen. In 2012, when her son was a toddler, she got raided by the feds.
“They destroyed everything in my house,” Oldham says. “They slit open my son's teddy bear and stole his piggy bank money. And just, like, crazy gangster stuff, because that's how they used to raid people.”
Over the years, she’s watched the industry creep out of the shadows. When voters legalized weed in 2016, Oldham jumped at the chance to spend more than $80,000 to get her farm up to code and go legal.
“Because I believe in it, and I want to normalize it, and I want to be a part of my community in a real way,” Oldham says. “I don’t want to hide in the shadows, and I never want to get raided again.”
Oldham can’t help but compare herself to her Mendocino neighbors, the grape growers. She can't access federal crop insurance like they can.
“We should be treated 100 percent equally to grape farmers. And, we don't have crop insurance like they do,” Oldham says. “If I was in a situation where I could've had crop insurance and my money in a bank I wouldn't be hurting nearly as bad as I am right now.”
Operating illegally for so long has given Oldham a high tolerance for risk. She has big plans for a comeback, like a bed and breakfast, cannabis-infused dinners, and marijuana-themed weddings.
Buying a new insurance policy isn’t first on her list of projects.
“But insurance is a hard thing to wrap your head around, because it's kind of like a total scam,” Oldham says.
Meet J.J. Pay, cannabis-insurance broker
J.J. Pay is a broker who offers insurance for marijuana businesses.
“Nobody just goes out and says, ‘Oh insurance — that's awesome.' That's kind of where I come in," Pay says.
Pay’s job is convincing the cannabis world that insurance premiums are worth the investment. He says people in the cannabis industry can buy almost all sorts of insurance, from general liability insurance to building insurance to homeowners insurance and more.
But major carriers don’t offer crop insurance for farmers with outdoor grows. Pay says it’s too risky. Weed is the world’s most lucrative cash crop, and growing pot outside on a farm is like storing gold in your backyard.
“You’re not only storing gold but you're storing it with really hot lights and water. So fires do break out,” Pay says. “And you're doing it in an open ag area with rural roads.”
Pay says what stops carriers from issuing more policies is hard data. Once insurers run the numbers, they can calculate the risks of marijuana farming. Only then can they can set realistic premiums.
“If you don't have the data, you don't have a policy,” Pay says.
Jeff Sessions pushes back
And there’s another problem. Last week, Attorney General Jeff Sessions gave U.S. attorneys permission to decide how aggressively to enforce federal marijuana laws. The Drug Enforcement Administration classifies cannabis as a Schedule 1 drug, just like heroin.
Sessions’ announcement could have a chilling effect on lobbying efforts to convince insurers and banks to work with cannabis.
National banks already risk losing their federal charter if they work with marijuana businesses.
Public banks and armored cars
“They don't want to expose themselves to that liability. They're banks,” says Elizabeth Ashford, who runs a political-consulting service for cannabis firms.
“We're not going to have a perfect solution until mainstream banks, and all banks, can bank with these businesses,” Ashford says.
Experts like Ashford have been trying to figure out how the state of California could work around the federal banking regulations. One idea is for cities to launch public banks. Oakland and San Francisco are already looking into this.
But Ashford is skeptical.
“Banks work because banks have capital in them. You know, it requires money to house money,” Ashford says.
Ashford says a state-owned bank, though, could work. Another idea is sending armored cars to collect taxes from pot businesses.
“Cash is moved around everyday. This volume of cash for one industry is an anomaly,” Ashford says. “But you know commerce existed before credit cards, obviously. So it can be done.”
Peace, harmony, and armored cars
Back at the Emerald Cup in Santa Rosa, cannabis business people are taking security measures into their own hands.
Besides extra-strength eucalyptus muscle-rub topicals and Outer Galactic chocolate truffle edibles, entrepreneurs are also offering e-banking services, armored cars, and security dogs.
In a mock robbery, a German shepherd attacks a man wearing body armor.
“We’re alleviating the need for people to have a gun around cannabis,” says a vendor.
People are preaching organic farming principles and harmony on stage.
“This product contains two ingredients — organic sun grown mangos, and organic sungrown cannabis,” says Maya Elisabeth of OM Edibles as she accepts an award in the CBD edible category.
“I want to say one thing, maybe we can have hope about regulation. Maybe there’s enough room for everyone,” Elisabeth says. "Maybe it is easy, and maybe we do all make it.”
Ex-hippies get cynical about the Man
If you detect some anxiety here, there’s a cannabis product for that!
But these worries are serious. People here are relieved about legalization. They’re also concerned about small farmers being swallowed by corporations. For at least one more time, though, the Emerald Cup is just a bunch of old friends getting high together. Longtime farmers like Susan Schindler are having a ball while they can.
“I went to my friend Frenchy, who is probably the best hash maker in the world,” Susan Schindler, 71, says. “Frenchy took out a hookah, and he put some flowers and some of his famous hash, and about 20 people stood around the hookah. So yeah, I was one of those 20!”
Schindler says that this year there are fewer people offering brownies and more people selling insurance policies. She’s conflicted about legalization.
“I will give it two years. If I find out in two years that this is just not what I wanted and what I settled for originally, then I’ll stop,” Schindler says.
Legalization means days spent filling out paperwork, researching insurance premiums, and competing with greedy corporations.
“I didn't move to the middle of nowhere in Mendocino County to be the Man,” Schindler says.
The Man gets a bad rep, but the Man can provide loans, insurance, and bank accounts.
Marijuana is going to be a multi-billion dollar industry in California. So now officials are finally exploring banking and insurance solutions to help the industry get the financial security it needs to grow.
And now ex-hippies like Schindler are considering getting out.