Pubdate: Sun, 20 Mar 2016
Source: Orange County Register, The (CA)
Copyright: 2016 The Orange County Register
Author: Brooke Edwards Staggs


The media glare on Orange County after January's jailbreak revived 
buzz over a separate, sensational crime: the brutal kidnapping and 
torture of a local pot shop owner.

One of the escaped inmates was accused of being part of a trio that 
drove the dispensary owner to the Mojave Desert, where they 
mistakenly believed he had stashed cash. When the man couldn't lead 
his kidnappers to buried treasure, authorities allege the escapee and 
his accomplices burned him with a blowtorch, severed part of his 
penis and left him for dead.

It appears to be the most salacious tale of violence linked to the 
large amounts of cash swirling around the county's pot dispensaries. 
But it's not the only one. A marijuana delivery driver was beaten and 
robbed in Lake Forest in 2014, and a would-be thief was killed by a 
guard at an illegal Anaheim dispensary a year ago.

Critics of more liberal marijuana laws cite such incidents in calling 
for a ban on retail pot sales. But advocates for legalization of 
medical and recreational pot say such crimes are the product of 
backward and dangerous federal drug laws that force marijuana 
businesses to operate with cash.

A growing number of companies are developing technologies designed to 
pull the burgeoning U.S. marijuana industry from the financial dark 
ages to a digital future that doesn't use cash at all.

"The risk of violent crimes is overwhelming when you've got people 
driving around with tens of thousands of dollars in their car," said 
Kenneth Berke, CEO of the online payment system PayQwick. "We need to 
take cash out of the transaction."

While 23 states have legalized medical marijuana and four allow 
recreational use, major banks and credit card companies won't do 
business with growers, distributors and dispensaries because federal 
law still classifies cannabis as a Schedule I narcotic, the most 
dangerous category that includes heroin.

"What that means for banks is that the revenue they receive from 
serving marijuana businesses  whether it's legal or not under state 
law  is considered dirty money under federal law," said Tom Dresslar 
with the California Department of Business Oversight, which regulates 
the state's financial industries. "So as soon as they accept it, 
they're laundering it."

Critics argue the federal government's stance, ironically, has 
created a cash industry  estimated at $5.4 billion last year - ripe 
for illegal activity.

Some local banks and credit unions are quietly taking on marijuana 
businesses, according to Tustin resident Jeff Goh, CEO of the 
cannabis firm Notis Global. A December report from American Banker 
showed 266 of the nation's nearly 6,200 financial institutions had 
accounts with marijuana-related businesses.

But big banks aren't budging, Goh said, which makes it tough for 
companies that work in multiple states to keep funds in the regulated 
financial system.

"It's really mind-boggling that the business is as robust as it is 
operating on a cash-only basis," said Chris Francy, who relies on 
armored truck services for his OC3 dispensary in Santa Ana. "It's 
very, very difficult to run a business where the only payments you 
have are cash."

Even with checks and balances, Francy said, operating in cash makes 
businesses vulnerable to internal theft. They struggle with simple 
transactions like paying workers and bills. The state Board of 
Equalization says some dispensaries have settled tax bills with 
duffel bags stuffed with up to $150,000. Plus, multiple studies show 
customers spend on average 20 percent less when they can't use credit 
or debit cards.

Some dispensaries have resorted to installing ATMs without telling 
banks that process those funds how they'll be used, which triggered 
hundreds of machines being shut down in 2014, according to media 
reports. Francy complains that other retailers misreport pot 
purchases paid with credit cards as something else. Doing so can 
result in Visa or MasterCard blacklisting them for life.

Industry members are calling for a federal solution, either through 
removing marijuana from the Schedule I drug list or approving 
legislation that opens traditional banking services to cannabis 
companies. A tipping point on such federal law changes could be near, 
Dresslar said, because a dozen more states are poised to vote on 
legalizing medical or recreational use in 2016.

In the meantime, "potrepreneurs" are ramping up alternative, noncash 
payment options. Here are a few of those approaches:


PayQwick has been dubbed the PayPal for pot.

Dispensary owners can use the online payment platform to pay vendors, 
landlords and workers. Customers can use a preloaded PayQwick card to 
make purchases and collect rewards, with an app version for 
smartphones expected soon. The Los Angeles-based company collects an 
average 2.75 percent transaction fee from vendors.

The system was designed with current federal banking regulations in 
mind, Berke said.

"We're not trying to get around the law," he said. "We've figured out 
a way to comply with it."

PayQwick will operate only in states with thorough seed-to-sale 
enforcement programs, which track pot from cultivation to purchase, 
Berke said. The company also conducts its own compliance checks four 
times a year, he said. And clients who aren't following the rules are 
dropped from the system.

Still, PayQwick has encountered banking challenges.

The platform was set to launch two years ago through a Washington 
regional bank, which pulled out of the arrangement at the last 
minute. So PayQwick turned to community banks, Berke said, and both 
sides breathed a sigh of relief when those banks passed Federal 
Deposit Insurance Corp. audits in December.

"We like the fact that people are able to pay with something other 
than cash," said Pam Senstermacher, a manager at Seattle's Cannabis 
City dispensary, which uses PayQwick.

So far, only a couple of Cannabis City customers are regularly using 
the PayQwick option, she said.

"It's just something new," Senstermacher said. "People are always a 
little wary of companies they haven't heard of."

P ayQwick hopes to soon expand its brand to Colorado. And once 
California begins enforcing a seed-to-sale program that was approved 
in October under the Medical Marijuana Regulatory and Safety Act, 
Berke said it plans to offer the system here.


If PayQwick is the PayPal of pot, Greenito is closer to the industry's Groupon.

The Denver-based company lets dispensaries and delivery services 
offer discounted packages, such as edible samplers. Shoppers pay for 
those packages plus a small "access fee" with a credit card online, 
then get a certificate to redeem through the retailer.

Since the company's May launch, businesses in Northern California, 
Colorado, Arizona, Michigan and Oregon have used Greenito, CEO Mary Smith said.

"Deliveries like us because they don't have to send their drivers 
around with cash," Smith said. And storefront dispensaries are happy, 
she added, because "the average sale on our site is higher than the 
average sale in a normal cash retail environment."

Greenito also offers an accounting and bill-paying system that helps 
pot retailers stuck in a cash-only system. Once a shopper has bought 
a coupon, the seller can have Greenito deposit funds into their bank 
account  if they're lucky enough to have one at the few banks 
offering those services. But Greenito can also wire funds to a third 
party, such as the dispensary's utility company.

Because Greenito doesn't deal directly with marijuana, Smith said it 
has no trouble finding a bank. That frees employees to focus on 
marketing, like offering consumer data for retailers and creating 
content to help online cannabis shoppers feel less intimidated by the process.

The Holistic Center medical dispensary in Phoenix is offering 
specials like a $90 "vape escape package" through Greenito, manager 
Laura Potter said. In five months, just under 25 vouchers have been redeemed.


The pot vending machine ZaZZZ, made by American Green in Arizona to 
go inside dispensaries, accepts cash along with bitcoin - the most 
well-known digital currency.

Such encrypted, digital currencies can be converted into dollars, but 
are chiefly circulated outside traditional financial systems.

Trees, a high-end cannabis delivery service in the Bay Area, accepts 
bitcoin. And company CEO Marshall Hayner, who has a background at 
cryptocurrency startups, said the firm is getting ready to add a 
credit card payment option linked to ledger-keeping technology that 
manages and secures bitcoin transactions.

Such user-friendly interfaces should reduce consumer and retailer 
resistance to digital currency, which they generally doesn't 
understand, Hayner said.

Indeed, the OC3 dispensary in Santa Ana has never considered 
accepting bitcoin or other cryptocurrency, Francy said, because 
they're still looking for "real, bona fide solutions."

Goh believes digital currency and other technology solutions will pay 
a growing role in the marijuana industry  at least until the federal 
government opens up traditional merchant services.

"Banking in the marijuana industry is when, not if," Francy said.
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MAP posted-by: Jay Bergstrom