When seasoned security manager and longtime ASIS International member Brian Gouin started working as a consultant and virtual security manager for a medical marijuana production facility in Maryland, he certainly had some questions about the security challenges that the new gig might pose.
Would external theft be a problem? He had no experience in this sector, and dark visions of criminal cartels stormtrooping the facility to steal product occasionally crossed his mind. Luckily, that never happened.
"External theft has really not been a big problem. Surprisingly, there has not been a lot of that," says Gouin, who has spent nearly 30 years in the security industry and is currently owner of Strategic Design Services, a firm specializing in security design and project management services.
Still, the marijuana production facility did employ armed guards, because it held product that was worth at least $5 million. "That's more dollar value than 99 percent of banks in the state," Gouin explains. And since marijuana is so easy to sell, that product can be considered almost the equivalent of cash, he adds.
But unlike external theft, internal theft was a problem. Employees sometimes helped themselves to a bit of product "to go" when leaving the facility for the day. Finding ways to screen workers on the way out was difficult. Complicating this matter is that keeping track of the on-hand marijuana supply can be a complex task. "You can't inventory it the way you inventory other products. You have to dry the plant; when you dry the plant, it loses weight," Gouin explains.
And working with certain company employees was an unusual experience, even for a veteran security consultant well-accustomed to adjusting to different types of office cultures. "It's so unique because of the type of person working there. Most of these people five years ago were running from the cops and making this stuff in their basement," Gouin says. "They are naturally distrusting of security."
Overall, many of the facility's biggest security challenges stemmed from the fact that it is a nearly all-cash business. The ramifications of this are many. For instance, cash at a thriving marijuana business can accumulate quickly; but when it comes time to deposit the money earned, banks generally do not want to accept huge currency bundles, which can result in scrutiny from federal regulators, Gouin explains.
Given this, many marijuana businesses are forced to keep significant cash on hand. Some outgoing expenses, like compensation for day workers and certain bills, can be paid in cash, Gouin explains. Much of the rest can be deposited in smaller amounts that are spread out, so the bank will accept them. Of course, transiting large amounts of cash can also be risky, so the operation bought and used an armored vehicle, described by Gouin as "a small vanny-type thing."
Still, in one way the business that Gouin works for is lucky—it found a local bank that will take its money.
Because U.S. federal law still includes marijuana on its Schedule I list of illegal substances, no large "tier one" bank will do business with cannabis companies now, says Joshua Laterman, CEO and founder, National Association of Cannabis Businesses (NACB). This is the "black letter of the law" that means that banks can be charged with crimes like money laundering if funds they have accepted from cannabis companies are mixed with other funds and enter the U.S. federal wire deposit system. This could lead to a federal indictment.
"No tier one bank enters the sector unless the law changes or some type of [exception] is put into place, like a safe harbor," Laterman says. "There is no cure, full stop."
This is a significant problem, given the growth and revenue-generating power of the cannabis industry. Going into 2018, nine states and Washington, D.C., had legalized marijuana outright; for medical purposes, marijuana is legal in 29 states and D.C. This year, at least 12 states are poised to consider marijuana legalization; Vermont already did so in January. On the whole, the industry generated $7 billion in revenue in the last 12 months, and this figure is expected to rise to $10 billion this year, according to NACB.
Given this revenue generation, some local banks (like the one working with Gouin's facility) and credit unions have tried to step in and fill in the vacuum. "It's the only show in town right now," Laterman says. These local banks often charge an extra compliance fee, and they usually just provide an account and some checks, without offering more involved services like credit cards. On the whole, these banks believe that the potential reward is worth the potential risk, and that working with local business is "in service of their mission."
"It's all very hyper-local," Laterman says. "They do it in a very personal way."
Nonetheless, these local banks usually cap the amount of deposited funds at $250,000, the limit that the Federal Deposit Insurance Corporation (FDIC) will insure. All things considered, there are not nearly enough of these smaller banks willing to accommodate all the revenue. "It's like trying to handle a two-liter soda with a Dixie cup," Laterman says.
Across the northern border, no such problem exists. Canada has legalized marijuana for medicinal purposes throughout the country, and banks and other financial institutions have no problem working in the industry. "You're seeing investment banks, you're seeing accounting firms, and you're seeing law firms who will not do any transactions in the United States, but they are doing a lot in Canada," Laterman explains.
However, back in the United States, it is possible that there will be some movement on the legal issue in the near future. Some analysts have said that if more states continue to legalize marijuana, it will simply not be tenable for the country to have two sets of applicable law. Congress will have to act and change the banking laws to allow for an exception, so that a licensed marijuana distributor can use the banking system.
Moreover, what may help drive an effort for a solution is the U.S. government's realization that an industry generating billions in revenue without a banking and finance structure to support it could turn into a security nightmare.
"The money needs a place to be put, and there's not enough places to put it in. That's a growing public safety risk," Laterman says. California, he adds, holds some promise as a potential solution driver. As part of that state's legalization effort, officials set up a high-powered working group to address the legal issues. "It's a great effort; they are getting great people around the table," Laterman says.
He adds that NACB, which describes itself as the only self-regulatory organization (SRO) in U.S. cannabis, will continue its work of professionalizing the industry with credentialing, licensing, education, and other such programs. "We need to address the trust and information gaps, and better understand who the players are," Laterman explains.
Meanwhile, security managers who are curious about what it is like to work in the U.S. cannabis industry may want to check out The Marijuana Project, a novel published by Gouin (under the pen name Brian Laslow) that was in part inspired by his experiences in the industry.
In the book, security expert Sam Burnett, a conservative family man who runs a security program at a medical marijuana production facility, wrestles with the moral issues of working with the drug while he navigates the dangerous plot twists and turns that the thriller storyline takes him through. Although the book is fiction, the various industry issues and scenarios that the main character, a security expert, is involved with may be of educational value.
As for the real-life Gouin, who initially wondered if working in the cannabis sector would tarnish his professional reputation, he now says his experience was a positive one for his business: "It gave me another niche." And so his advice for fellow security managers who are interested in following his lead is "go for it"—as long as they do their due diligence beforehand.
"You have to understand the quirks of the industry," he says.