As Colorado banks have dropped medical marijuana-related accounts in order to comply with federal regulations, MMJ business owners are looking for advice on how to manage their now often cash-only enterprises. And they're not the only ones asking, as Robert Frichtel recently discovered.
Bloomberg News recently contacted Frichtel, managing partner of the Colorado-based Medical Marijuana Business Exchange, a for-profit company providing consulting services for MMJ outfits in Colorado and other states where medical marijuana is legal, who wrote an op-ed on behalf of his clients, advocating for legal access to banking for the MMJ industry.
Frichtel says his phone has been "off the hook" since the piece ran in Bloomberg last week (it was reprinted in the Denver Post Sunday), adding that it seems like he's "getting the conversation started." Of his estimated fifty clients in Colorado, a majority have lost their banking relationships. "This is something that a lot of people who look at the medical marijuana industry don't even realize has happened," Frichtel notes.
But those in the MMJ industry certainly recognize the problems that running a cash-only business presents. "The major, major challenge comes in with the federal payroll system and the way you have to submit taxes," Frichtel says. "By the elimination of people having access to banks, it's at odds with submitting payroll taxes." Submitting payroll taxes under an electronic system, without access to a bank account, is "an absolute nightmare," he adds.
There are other challenges, too. "We have started to work closely with tax lawyers to have the business owners best manage their businesses in an all-cash environment," Frichtel explains. "It's easier to lose track of cash, so it means, really, an additional layer: an accounting cash-management layer inside of the business."
The federal crackdown on bank accounts for MMJ businesses has been remarkably successful across the nation - in part, Frichtel says, because of how owners have branded their MMJ companies. "Marketing 101 says to name your business to tell people what you do, so when you go into a bank, you're immediately identified by what you do," he explains. And while some MMJ companies are now using less specific names, that's not a long-term solution. "I advise people to be honest all the time," Frichtel concludes. "I don't tell people to go in and lie to a bank. But if it can be slightly more generic, there are people giving that advice."