Budding Pot Business Needs Legal Banking: Robert Frichtelby
At a time when the country is trying to create jobs and encourage the growth of small businesses, why is the Obama administration going to such lengths to kill a thriving and legitimate industry?
Here’s what’s going on: Although Colorado, where I live, 15 other states and the District of Columbia have passed laws allowing medical use of marijuana, the federal government is sticking to its outdated, one-size-fits-all policy on drugs.
This was made clear last summer when the Justice Department issued a memo in which it restated that marijuana is still a so-called Schedule I drug -- the equivalent of heroin or LSD -- and has no legitimate medical use. In other words, growing and distributing medical marijuana is a felony under federal law.
The upshot of this is that any bank or credit union doing business with a medical-marijuana dispensary, even simply by allowing them a bank account, is potentially subject to money-laundering charges. These are the same class of charges that apply to genuine criminal activities such as human trafficking, arms smuggling and prostitution.
Bank Doors Shut
I’ve heard from many of our clients that run medical-marijuana businesses that banks have had their federal charters threatened, have been told that the access to Federal Deposit Insurance Corp. insurance programs could be at risk and have been informed that individual bank employees may face criminal prosecution if they opened accounts or allowed existing accounts to stay open.
With this message from the federal government, banks have closed accounts summarily. With little or no notice, medical-marijuana businesses have been told to stop using a bank’s services and withdraw any deposit balances they have.
Try being the owner of a legal business that does not have access to the banking system. You can’t accept credit cards (that service was shut off, too), so all the day’s business is done in cash. What do you do with the proceeds of the day’s sales? How do you pay your employees? Payroll-tax withholdings need to be submitted to the government, and this can only be done by electronic withdrawal from your business’s bank account. How do you pay your suppliers?
It has created many unnecessary challenges and expenses for the industry. And in states where the laws require strict and detailed accounting of business transactions, compliance becomes more difficult.
But medical marijuana is a legal business, approved by voters in Colorado in 2000, when the state adopted a constitutional amendment. Since then, medical marijuana has flourished and become an industry that contributes $25 million in sales taxes and fees and employs thousands of people at more than 600 dispensaries and manufacturers of food and other products infused with medical marijuana. In Denver County, there are more medical-marijuana dispensaries than there are Starbucks in the state.
When the support businesses are included -- such as plumbers, electricians, landlords, accountants and lawyers -- it’s easy to see the strong economic prospects for this industry. And I’m referring to one state. When you include the 15 other states and the District of Columbia, this is a multibillion-dollar industry with the capacity to generate hundreds of millions of dollars in sales taxes and fees nationally, and to employ tens of thousands of people.
Access to Banking
There is a possible solution to this industry’s banking crisis, but it’s got a long way to go. Last year, two members of Congress -- Representative Jared Polis of Colorado and Representative Barney Frank of Massachusetts -- introduced legislation to allow state-certified medical marijuana businesses to have full access to banking services.
While the legislation inches its way through the federal system, individual states are starting to take action, too. Last month, a Colorado state senator, Pat Steadman, introduced a bill that would allow the medical-marijuana businesses in Colorado to create financial-services cooperatives to supply basic banking service to the industry. Sadly, this measure failed in committee, but it’s likely that another attempt for a state-sponsored solution will be made either here in Colorado or another state where medical marijuana is legal.
It is unfortunate that these extra measures are needed when the federal government could easily solve the problem it created by simply reclassifying marijuana as a Schedule II drug and taking the pressure -- to avoid medical-marijuana businesses -- off the banking system. The federal government should be working with the states to allow them to carry out their laws allowing medical marijuana, not try to push it back underground.
(Robert Frichtel is managing partner of the Medical Marijuana Business Exchange. The opinions expressed are his own.)
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