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In the days of the ban – cannabis, no alcohol – a half-gram nickel bag cost five dollars on the black market and usually left you unsure of what you had 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, those financial transactions have gotten more complicated . Why?
Essentially because the federal government still believes them to be illegal drug deals.
Last month we received an email from a medical marijuana patient in Chittenden County. The woman, who is registered with the Champlain Valley Dispensary, asked for anonymity to protect her medical privacy. She was annoyed that on top of the annual registration fee of $ 50, she was charged a 1 percent surcharge for every cannabis purchase, regardless of whether she paid by cash, check, or debit card.
“Debit card fees used to be passed on. I get that,” she wrote. “But giving them cash for a product and then giving them extra money to figure out what to do with the money I paid for the product seems really exploitative.”
Jeffrey Wallin, director of the Vermont Crime Information Center, which oversees the medical marijuana registry, acknowledged that any additional fees charged to patients are collected by the pharmacies themselves, not the state. Under Vermont law, medical cannabis is exempt from state and local sales and use taxes.
So why the 1 percent fee? Shayne Lynne is the managing director of Champlain Valley Dispensary and Southern Vermont Wellness, which have three locations in South Burlington, Middlebury and Brattleboro serving a total of approximately 3,200 patients. As he explained in an interview and subsequent emails, in November 2019 pharmacies began charging a “bank surcharge” for each transaction, which allows them to bank with a Vermont financial institution.
How many banks and credit unions did Lynn reach out to before he found one to open an account with? All of them, he said.
“We need a bank account to be able to work for all sorts of reasons. One of them is security,” he added, referring to the large amounts of money that pharmacies handle. Bank accounts are also critical to handling payroll, income taxes, and other pharmacy business transactions.
Financial institutions that choose to do business with the cannabis industry – most of them don’t – have to strike a delicate balance between state and federal laws. With marijuana still listed as a List I drug under federal controlled substances law, banks and credit unions run the risk of losing their charters if they cannot prove to regulators that cannabusiness accounts are not being used for money laundering.
Banking industry concerns about the possible risk of federal prosecution were heightened in January 2018 when President Donald Trump’s then Attorney General Jeff Sessions overturned the so-called Cole Memorandum. In this 2013 memo, written by then-Assistant Attorney General James Cole under President Barack Obama, federal prosecutors were instructed not to prosecute marijuana crimes in states that legalized cannabis for medical purposes and / or for adults.
Lynn stated that the financial institution he works with – Vermont State Employees Credit Union – has a contract with a Denver, Colorado data collection company called NCS Analytics to help minimize the risk of federal extortion fees. NCS acts as an external auditor and searches all pharmacy transactions to alert bankers and regulators to suspicious activity. No matter whether money is coming in or going out, the 1 percent fee is charged to every transaction, Lynn said.
Lynn couldn’t tell how the other pharmacies in the state would share these costs with their patients, but he insisted they all be subject to the same banking rules.
There are other quirks to doing business in the legally gray area of the cannabis world. On the one hand, other health-related items such as dentures, hearing aids, contact lenses and toiletries are classified as “medical devices” and are therefore tax-free. Non-cannabis items sold in pharmacies – pipes, vaporizers, grinders, papers – that alleviate the suffering of incurable and chronically ill patients are still classified and taxed as “drug paraphernalia”.
If pharmacies accept debit card payments – national credit card companies still won’t touch transactions – pharmacies must be rounded up or down to the nearest whole dollar number.
Some of these rules are likely to change under President Joe Biden’s administration. In 2019, the US House of Representatives passed the Secure and Fair Enforcement Banking Act, which would ease many of the financial restrictions on the US cannabis industry. The bill is expected to enjoy a warmer reception in the new Democrat-controlled Senate, where it has not yet been passed.
Last March, when the pandemic forced many businesses to close, pharmacies were considered an “essential service,” allowed to stay open and even deliver their goods to patients’ cars to minimize exposure to coronavirus.
For Southern Vermont Wellness in Brattleboro, that wasn’t a difficult adjustment. As Lynn pointed out, it is in a former TD Bank building that has a drive-through window and air hoses that are still functional.
That’s one way to keep them in the green.