Checks and Balances: Financial Regulation and the Cannabis Industry

Why can’t owners of cannabis businesses cut a check? Because they don’t have a checkbook.

On September 10th, the Senate Judiciary Committee held a hearing that investigated conflicts between state and federal marijuana laws. The hearing came right on the heels of new guidelines for the enforcement of federal marijuana laws, which the Department of Justice released at the end of August, and addressed the issue of marijuana and banking.

Under current federal law, it is illegal for banks to open accounts or issue credit cards to cannabis businesses. Banks that do choose to process money from marijuana sales run the risk of losing the protection of the FDIC, along with the possibility of prosecution for racketeering.

And while the DOJ relaxed its stance on marijuana enforcement in states where the drug is legalized, it did reserve the right to prosecute marijuana crimes that revolve around the flow of money, particularly to cartels and other criminal organizations.

That poses a serious problem for marijuana businesses which are forced to operate on a cash only basis.

King County Sheriff John Urquhart was a member of one of the panels that took part in the Judiciary Committee hearing and he spoke to the issue in his testimony, “Under federal law, it is illegal for banks to open checking, savings, or credit card accounts for marijuana businesses. The result is that marijuana stores will be operated as cash-only businesses, creating two big problems for us: (1) Cash-only businesses are prime targets for armed robberies; and (2) cash-only businesses are very difficult to audit, leading to possible tax evasion, wage theft, and the diversion of resources we need to protect public safety.”

Deputy Attorney General James Cole, author of the DOJ memo clarifying its position on the enforcement of marijuana laws, admitted that the lack of banking options for marijuana businesses was something that “we need to deal with.” Cole emphasized that “there are no perfect solutions here,” and that it was something that the DOJ was working on.

The question is how long will the DOJ and the Senate Judiciary Committee be working on it. With legalized sales of marijuana set to begin in early 2014, time is of the essence. It is unlikely that banks will start to offer services to marijuana businesses until there has been a clear decision on the part of either the DOJ or congress.

Photo Credit: Sean Dunbar

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