blog-4 problems with cash only cannabis

4 Problems with Operating a Cash-Only Cannabis Business

Cannabis businesses continue to struggle finding the banking and financial support needed to open deposit accounts, secure loans or lines of credit, and manage payroll. Without the proper banking relationships, dispensaries are also unable to accept checks or credit cards for sales transactions. A number of institutions have started working with cannabis businesses, but many of their services are either limited, expensive, or both. Due to slow progress at the federal level, many cannabis businesses operate as cash-only. Cash-only transactions may seem easier to manage; however, it should not be a permanent solution. These businesses have an increased level of risk for the operation and often end up costing the business more than expected.

Cash-Only Cannabis Business Problems


The chances of theft and robbery increase.

Large amounts of money on site can increase the chances for theft and creates a safety risk for both employees and customers. In general, 10% of all financial and product loss in the cannabis industry is attributed to external theft. However, about 90% of all loss is attributed to employee theft. Employees operate the POS system with cash-only transactions, are paid in cash, and know there’s a safe onsite and an armored car that makes regular visits. Handling large amounts of cash can create temptation. Aside from having strict protocols and surveillance equipment in place, dispensaries can decrease the chances of internal theft by thoroughly vetting their employees for integrity and trustworthiness through extensive background checks and references. A mistake in hiring and poor security measures could cost the business time and money, a scenario that is, unfortunately, quite common.

Paying employees in cash causes payroll complications.

Without securing bank accounts and an appropriate payroll system, businesses cannot offer employees direct deposit or cut company checks to their employees. Many have no other option than to pay their employees in cash, which may not seem challenging at first, but does come with its own measures to be compliant with employee laws such as the Fair Labor Standards Act.

Paying taxes
Employers must withhold payroll taxes (federal and state income tax, Social Security/Medicare) from employee pay. Employers must also report withholdings to the IRS. Moreover, employment taxes must be paid on employee earnings including unemployment and worker’s compensation. Should an employer pay an employee in cash without withholding and reporting taxes, employees would not be eligible for unemployment benefits or worker’s compensation should an accident or injury were to happen onsite.

Many businesses will consider employees independent contractors to circumvent tax complications. However, contract employees must fill out a 1099 form for appropriate classification and be made aware of their responsibility to take out their own taxes. Employee misclassification could mean severe fines and penalties if the cannabis business is audited.

Payroll documentation
While in the short-term employees might be thrilled to receive cash, over time it can have a negative impact due to lack of documentation. Paycheck stubs often document the payroll date, the amount, and if any taxes were withdrawn. But, paying employees in cash leaves little to no paper trail and puts both the employee and business at risk. To avoid complications or conflict long-term, some states require businesses to provide a paycheck stub or receipt for hours worked, rate per hour, total wages being paid, and if any deductions are taken out—this obviously would be a huge hurdle for cash-only businesses.

Additional overhead and operational expenses.

Many cannabis businesses are unaware of the extra labor, costs, and resources needed to operate a cash-only business. These expenses add up over time.

Added security
Some states where cannabis is legal (medical or recreational) require dispensaries to take security measures. For example, California requires dispensaries to have:

  • ID badges for all employees
  • Limited-access areas within the facility
  • Security personnel
  • 24-hour video surveillance of all areas containing cannabis products and all point of sale areas
  • Alarm systems
  • Commercial-grade locks
  • Secure storage of all cannabis products

If your business is experiencing sales growth, then you’ll want to invest in a larger safe and an upgraded POS system to improve product tracking and inventory, monitor employee activity, and avoid cash shortages from sales transactions.

Cash Counting & Handling
A California-based cannabis company reports that it employs workers to specifically handle and count the money. In fact, three or four hours a day is dedicated to feeding cash into a cash counting machine. And because safety is critical, the employees count the money three times at an undisclosed location. The money is then bagged up and transported in an armored car to be further processed. The workers, the time it takes to count and verify the cash, and the armored car service are all expenses.

IRS audits are more likely to occur.

Operating as a cash-only business makes it harder for the state to track the business’ finances to ensure they are obeying the law and paying their taxes. A cannabis business may have several years in operation and be in good standing, but because the industry continues to be under scrutiny, cash-only businesses get the brunt of the law. Oregon Senator Jeff Merkley who is in favor of the SAFE Banking Act said operating an all-cash economy is, “an invitation to money laundering, to organized crime, to the diversion of products, to cheating on your taxes, to cheating your employees.” Even though businesses may have their hands tied at the moment with current banking challenges, operating in all cash makes them more vulnerable to IRS audits.

Mitigating the Risks with a HR and Payroll Solution Tailored to the Cannabis Industry.

The industry is actively finding workarounds for overcoming financial challenges. Many businesses have started using ATMs to issue gift cards or vouchers that can be used as tender for cannabis products. Others have started working with companies that provide electronic transfers between growers, sellers, and customers, and financial institutions. The industry will continue to innovate in the absence of federal changes to cannabis regulations, but it will always be ideal to have the full support of banks and financial institutions. Despite it being a challenge, finding the right banking relationships isn’t impossible when a cannabis business works with a Professional Employment Organization (PEO). PEOs like OROleafhr have the trusted financial partners that support the cannabis industry and work with your business to alleviate your current challenges, such as payroll, risk management, worker’s compensation, and tax compliance.

Contact OROleafhr to discuss your operational and financial needs and we’ll partner to develop a solution that works best for your business.