Not in the Bank

Picture yourself as a humble small-business owner. You arrive at work one fine, crisp Tucson morning to a surprising letter from your bank. It says you have two weeks to get any and all the assets out of your account before they freeze it indefinitely.

The rent on your office is due next week, and Friday is payday for your employees, and Tucson Electrical Power is wondering when they are going to get their check for last month’s energy usage. The bank offers no explanation of why your account was closed.

This is the daily reality for small business owners who conduct services in the medical marijuana industry throughout Arizona.

For Aari Ruben, owner and operator of Desert Bloom Re-leaf Center, this exact scenario has happened to him six or seven times since opening the doors of his business a little more than two years ago. The most recent note he happened to receive from Chase Bank the morning he spoke with Tucson Weekly.

“Basically they just see the large amount of cash going in on a regular basis and the names of the vendors we’re paying money to and try to get rid of it,” Ruben says. “They don’t give any reason for it, and it’s not something we can ask them to reconsider.”

All banks are FDIC insured, which means they have to abide by federal law in order to keep that certification. Although these businesses are perfectly legal under the Arizona Medical Marijuana Act, they are still illegal federally.

“They don’t want to risk their line of revenue,” Ruben says. “This seems like a big business, but relative to other more developed industries, it’s really small.”

Businesses such as Ruben’s are using their bank accounts in the same way all traditional businesses do—to write checks to pay for rent, utilities, payroll and all of the sales taxes that they incur. The only difference is that these businesses serve medical marijuana patients.

This happens so frequently to Ruben’s business that they already have a contingency plan to deal with their account being closed. By staying ahead of the game they have another bankroll open before the old one is closed and simply transfer the money to the new account.

“It’s an interruption that every other type of business doesn’t have to deal with,” Ruben says. He says it’s a hassle having to deal with this on such a regular basis. Changing accounts requires him to change their payroll, deposit slips and utilities checks.

Similar scenarios happen to patient referral centers as well, even though they are not selling any marijuana product, their accounts get shut down.

Both Chase Bank and Wells Fargo, places where Ruben has had bank accounts related to his business shut down, declined to comment.

Tumbleweed Health Center, the longest running medical marijuana referrals business in Tucson, used different methods to handle their money, but were closed in similar fashion. Kim Williams, Tumbleweed Health Center co-founder says they used both Intuit and Square, mobile banking apps, to serve their patients. The two companies eventually closed their accounts.

“Both Intuit and Square says it was specifically because of medical marijuana,” Williams says, adding that both companies closed their accounts with next to no prior notice.

The strange part is that despite these businesses being illegal federally, it does not stop them from paying federal income tax on all the accounts they have open in their name. Internal Revenue Code section 280E allows for the taxation of illegal income in the same way as legal, but refrains from letting “illegal” business take tax deductions that most businesses would expect.

Administration, labor, utilities, occupancy, everything that’s associated with bringing a product to market is not deductible for Ruben’s business.

“Even though we’re operating a business that isn’t legal under federal law, we’re still taxed heavily and denied our basic deductions,” Ruben says. “The government doesn’t care whether your source of income is legal or illegal, they still expect to be paid their taxes.”

For these businesses, they aren’t trying to do anything shady like selling marijuana to non-medical patients or make drug deals with drug cartels. They are simply trying to serve the people that they view as patients in need of medicine.

“We want to be transparent on that,” Ruben says. “We don’t want to hide any money or play any shell games. We’re just trying to operate our retail service and serve our patient population.”

Until it becomes federally legal, it seems these businesses are SOL in terms of banking. Attempting to open up an account and disguising the fact that your business is a provider of either medical marijuana or medical marijuana referrals could be considered money laundering.

“It’s a nightmare. It’s challenging and it creates a lot on anxiety being in a business that people aren’t readily willing to accept yet,” Williams says. “We’re not going let anyone stop us, we’re going to keep plugging.”

This article appears in Nov 12-18, 2015.