SAN FRANCISCO (CNNMoney) – The wildfires scorching Northern California have burned down at least 34 marijuana farms, just as the state prepares to launch a legal recreational marijuana industry.
Recovery poses unique challenges for the growers. Because selling marijuana violates federal law, even when it’s allowed by individual states, most farms lack proper insurance and won’t qualify for federal aid.
Now an attempt to crowdfund money online for farmers in Sonoma and Mendocino counties has been shut down by payment provider WePay.
To help the families and businesses impacted by the fires, Hezekiah Allen, executive director of the California Growers Association, set up an online fundraiser.
He used personal crowdfunding site YouCaring and set a goal of $25,000. He managed to raise more than $13,000 before the site suspended the fundraiser on Monday and began refunding donations.
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YouCaring said fundraising for marijuana-related purposes isn’t allowed by its payment providers, WePay and PayPal.
“Our payment providers are unable to process payments connected to the production or sale of cannabis (including CBD oil), even in situations where such payments would be permitted under State Law,” said YouCaring’s Camelia Gendreau in a statement.
Because it’s illegal on the federal level, processing payments related to marijuana is technically considered money laundering.
“We have no other choice,” said WePay’s Jeremy Milk.
WePay, which was handling the donations for Allen’s fundraiser, says it cannot process any payments related to the drug because of federal law, government notices, and requirements from its bank and credit card partners. (The company is currently in the process of being acquired by JPMorgan Chase.)
In states where marijuana is legal, the industry has struggled with how to work with traditional banking institutions. However it is possible.
The Justice Department previously directed federal prosecutors not to go after marijuana businesses complying with state laws. The company can’t be associated with crimes that are a high priority for the government, like selling to minors, using federal land to grow, use of firearms, or transporting across state lines.
The U.S. Financial Crimes Enforcement Network, known as FinCEN, also weighed in with its own guidelines specifically for banking services. Banks can handle marijuana money, but they have to jump through additional hoops. They must know who their customers are and verify that they’re operating according to state law and not breaking the big federal laws. The banks must also file activity reports for any marijuana related transactions.
It would be difficult to meet all the requirements on a crowdfunding campaign with various unknown recipients and donors.
“It’s very tough. I know some marijuana companies have tried to raise money for their own businesses through crowdfunding and Kickstarting with limited success,” said Ken Berke, co-founder of PayQwick, a financial services company that specializes in banking and compliance for marijuana companies. “Unfortunately, we don’t see a lot of reform coming from the federal government for a long time.”
Recreational marijuana is legal in seven states and medical marijuana is allowed in 29 states. However, it is still classified as a Schedule I drug substance by the federal government, alongside cocaine, heroin and LSD.
The growers whose crops burned down were gearing up for January 1, when recreational marijuana stores open across California. Marijuana was a $2.8 billion industry in the state in 2016 and it’s expected to grow to $6.5 billion by 2020, according to The Arcview Group.
Since the law paving the way for full legalization was passed more than a year ago, farmers have been investing heavily in their crops and the various permits and requirements necessary to attain legal status.
Now affected growers will have to find other ways to cover their losses. WePay did point to a potential workaround for future fundraisers.
“We can process payments for campaigns to support victims of the Northern California fires, but not to support victims’ cannabis crops,” said Milk.
