With so many states changing their laws to allow for the legal sale of marijuana for medicinal use and now some moving to legalize recreational use legitimate businesses are finding themselves in a position where they are forced to hoard huge amounts of cash, a dangerous practice, on which they are paying large amounts of taxes. Banks which accept accounts from them put their charters in jeopardy for violating money laundering regulations. Eric Holder is looking into ways to work around these problems.
Currently dispensaries in 20 states can, under state law legally sell pot and are raking in huge amounts of cash on which they pay plenty of taxes but, because of federal banking laws, they cannot use banks without finding ways to bend the rules.
During a panel discussion at the University of Virginia, Holder said, “You don’t want just huge amounts of cash in these places. They want to be able to use the banking system. There’s a public safety component to this. Huge amounts of cash—substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited is something that would worry me, just from a law enforcement perspective.”
For the small businesses involved current conditions require a lot of creative thinking and risk. They use such methods as leasing warehouses where they store huge stacks of cash, sneaking through alleys carrying large amounts of money and varying delivery schedules in order to avoid robberies.
Some owners have established accounts with banks that are always on shaky ground but most have been forced to become, in effect, their own banker. “We call it the Bank of Kristi,” says Kristi Kelly, the owner of several dispensaries in Colorado. She spends much of her time just working out where, when and how to move her money around. “The Bank of Kristi has multiple branches. The Bank of Kristi has service hours.”
Still there is fear that a relaxation of enforcement may not be enough, as marijuana remains a Schedule I substance, considered by the law to be equivalent to heroin or ecstasy. Some worry that even if the DOJ institutes a policy of looking the other way where state law and federal law conflict an overly zealous prosecutor could still bring charges which would result in the loss of a charter for money laundering.
“Everyone has taken a position that it’s just too risky,” Robert Rowe, a lawyer for the American Bankers Association, told Alex Altman of Time Magazine recently. Exactly what form the new guidelines will take is yet to be seen.
A law enforcement official in Colorado speculates that the guidelines might take the form of a memo similar to that issued in 2013 which said that the federal government would take a hands off stance while seeing how retail pot experiments such as those in Colorado and soon Washington state perform. This may be enough to induce in-state banks to accept accounts from the businessmen running pot dispensaries, while national banks are less likely to accept the risk involved.
While most of the legislators at both the state and federal level who are pressing for clear guidelines are Democrats, this is an issue which has support from some Republicans who see it as a states’ rights issue.
“Attorney General Holder and the Obama Administration are unquestionably making the right call by allowing banks to work with legal marijuana businesses,” Oregon Democrat Representative Earl Blumenauer said. “If these businesses are unable to participate in the banking system, they have to operate with all cash, which invites criminality. It’s an important step toward fixing federal policy toward marijuana.”
Not surprisingly, one group that received the news of Holder’s remarks well is the retail pot industry itself.
“Everyone recognizes that the banking issue has created serious public safety and accountability problems for this new industry,” said the executive director of the Medical Marijuana Industry Group, Mike Elliott. “We urge Mr. Holder, the Treasury Department, and the Obama Administration to move quickly to create regulations that allow the legal marijuana industry, its employees, and customers to do business with banks just as any other business sector does.”
h/t: Time Swampland