Cannabis growers and sellers in Colorado paid the taxes collected during their first month of business on Thursday. With sales expected to reach $1 billion in the next year and taxes adding more than $100 million a year to state coffers, a lot of money is changing hands. The problem is that the money is in cash. Cannabis sellers may now be able to do business in Colorado, but they cannot bank like other companies.
The bustling market for recreational and medical marijuana has the ability to significantly boost revenue in states like Colorado and Washington (the two that have legalized recreational use). Twenty states and Washington, D.C., allow cannabis sales for medical purposes. Advocates are pushing to expand legalization for both uses to other states. But, those working in this cash crop industry have not been able to legitimize their business with bank accounts, payroll processing, loans and other small business financial support.
Banks have not done business with the marijuana dispensaries operating legally for fear of being prosecuted themselves. The issue is that marijuana is illegal under federal law. Federal banking regulations consider handling money for a business that produces, distributes or sells drugs to be illegal, too, and can result in money laundering and racketeering charges.
Some Colorado cannabis sellers hired other companies to handle their finances, but most run entirely on cash because they cannot establish business bank accounts. As a result, cannabis vendors had to set aside great amounts of cash to pay taxes. One chain of dispensaries sent $140,000 in cash with an armed guard to government offices to pay their first month’s taxes, according to the New York Times. Operating a large business on a cash basis is a safety hazard for owners, employees and customers.
Last week, the federal government finally cleared the way for banks to take deposits and offer services to marijuana retailers without risking money-laundering charges. They still need to file suspicious activity reports for money they believe is tied to the marijuana trade. The seven-page directive published last week by the U.S. Department of Justice and the Financial Crimes Enforcement Network, a bureau of the U.S. Department of the Treasury, still required reports identifying clients involved in illegal business, but the banks should now reflect that the activity is from a state where marijuana sales are allowed.
U.S. Attorney General Eric H. Holder, Jr., indicated last week that he believes lawful marijuana businesses should have access to the banking system and that the government need to develop rules to help them gain it. He cited the public safety and law enforcement issues presented by substantial amounts of cash lying around with no place to be appropriately deposited.
In spite of the Justice and Treasury moves, banks have indicated they are still hesitant to provide services or even take deposits from cannabis-related firms under a system where the federal government policy is “to look the other way.” Jim Reuter, an executive vice-president with FirstBank, Colorado’s second largest bank, told reporters that his bank is still not comfortable accepting cannabis-related businesses as customers. A spokeswoman for Wells Fargo said their policy is not to accept marijuana businesses, because the sale and use of marijuana is still illegal under federal law. She, did equivocate, however, by noting they are reviewing the federal directive.
Federal lawmakers have indicated they are also making efforts to ensure cannabis businesses can use banks. Boulder, Colorado, congressman Jared Polis is leading an effort to place marijuana under the regulatory arm of Alcohol Tobacco and Firearms and remove it from the Controlled Substances Act. Another Colorado congressman, Ed Perlmutter, of Arvada, a member of the House banking committee, is pressing legislation so banks can legally do business with cannabis stores.
Marijuana vendors hope the Justice and Treasury Department moves and federal legislators can address this banking problem soon. Medical pot storefronts are well established in many states. Recreational marijuana sales start in the state of Washington in the coming months. Colorado’s cannabis companies cannot continue paying their taxes in cash; they are recognized in the state as legal business entities and should be able to bank on it. So, should the others.
By Dyanne Weiss