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Can Ohio solve the legal pot industry's banking woes?

Posted at 7:00 AM, Aug 18, 2016
and last updated 2016-08-19 10:51:37-04

CINCINNATI -- If all goes as planned, Ohio could become the first state in the country to address the legal marijuana industry’s banking woes.

Medical marijuana becomes legal in Ohio on Sept. 8 -- making it the 26th state to legalize the drug.

But because the drug is still federally illegal, few banks will do business with the new pot startups, fearing they'll face charges for money laundering.

The dilemma has forced the nearly $5.7 billion legal pot industry to operate almost entirely in cash. The conundrum has become a top safety concern for legal marijuana growers, retailers and others tied to the industry who are forced to find ways to store piles of cash they need to pay their bills and employees.

In June a security guard at medical pot dispensary in San Bernardino, California was shot in the face during an attempted robbery. The robbery was among more than a half-dozen that occurred at pot dispensaries across the country in June alone. 

“Any time you’re dealing with big businesses that are forced to be cash-only, you’re going to see huge problems,” State Sen. Bill Coley (R-4th) said. “We want to avoid that in Ohio.”

State Sen. Bill Coley

The state’s medical pot program allows the commerce department to set up a “closed-loop payment-processing system” that would function similarly to pre-paid debit cards.

Coley, a Liberty Township Republican who crafted the portion of the law, said the main intent is to prevent corruption and crime.

“We’ll be able to track every dollar that moves through the system,” he said.

Rules for just how the system will operate have yet to be adopted by the commerce department. Still, Coley says he’s offered the department some of his own ideas for how the program could work:

  • Medical marijuana patients or their caregivers could deposit money to their accounts at a state agency such as a licensed liquor store.Those funds will be held and released by the state’s general revenue account.
  • Patients' accounts could be connected to ID cards that they can use to purchase marijuana.
  • Medical marijuana dispensaries, growers, testing facilities and processors could also have accounts they could use to pay bills, employees and buy product.

Coley says he’s also pushing for the system to track product purchases by patients -- not just how much money deposited and spent.

“We really want this system to work in cooperation with medical research,” he said. “The ability for doctors and researchers to have accurate information on what products are being consumed for various conditions is tremendous.”

Ian James, founder and president of Cincinnati-based Green Light Acquisitions, says he agrees that a banking solution is seriously needed in the industry, but he has some reservations about tracking product sales.

“We do need to figure out how to get cash into a structured system and out of people’s safes,” said James, whose cannabis startup is hoping to land a business license to process medical marijuana in Ohio. “But there has to be a way to make sure that a person’s privacy is protected with respect to what they’re purchasing.”

Ohio's medical pot program is expected to be up and running by 2018. That means lawmakers have a nearly two-year effort ahead as they work to write the rules that will govern the new industry here.

By Oct. 8, a 14-member advisory committee goes into effect. The committee will make recommendations on how to regulate growing of medical marijuana, how physicians should recommend it and how patients will obtain it.

Those recommendations will be given to three state agencies charged with oversight of the new program.

They include:

  • Ohio's Department of Commerce, which will be in charge of licenses and compliance of cultivators, processors and testing labs.
  • Ohio's Medical Board, which will certify physicians who recommend marijuana to patients.
  • Ohio's Pharmacy Board, which will oversee how patient registration and licensing of medical marijuana dispensaries. Under the law, epilepsy, cancer, chronic pain and Alzheimer’s Disease are among the list of more than 20 conditions that would qualify patients for medical marijuana use.