Legal Marijuana Businesses Face Banking Hurdles

By John Celock

WASHINGTON – The nation’s state lawmakers were briefed Thursday morning on the federal banking law hurdles facing marijuana businesses in states that have legalized the drug’s use for recreational or medicinal purposes.

A forum at the National Conference of State Legislatures conference here focused on how the federal law outlawing marijuana sales has been impacting the businesses in states legalizing the sales from working with banks. The focus included on the businesses setting up bank accounts and obtaining loans in order to finance their businesses.

The American Banking Association has circulated guidance that shows federal law curtailing most bank work with marijuana businesses in keeping with the federal charters governing most banks. Among the issues discussed by the ABA is that banks could face criminal penalties if they knowingly work with a business engaged in a business deemed illegal by the federal government.

An ABA official at the conference noted that banks are required to inform the federal government of any illegal activity they notice with money being handled by the bank. Public relations issues have been on the minds of many banks, noting that consumers could be turned off by dealing with a bank that finances marijuana businesses.

In addition with banks using inventory to secure loans to businesses, the question was raised of how does a bank handle taking custody of the inventory of a business that is illegal under federal law.

“How do you go in and lend on an illegal collateral. If you have inventory and have default,” the ABA official told legislators. “Then the bank is holding a storefront of marijuana related products. The bank isn’t licensed to sell or distribute those so how would they move that inventory.”

Michael Elliott, the executive director of the Marijuana Industry Group in Denver, spoke of the benefits Colorado has seen since legalizing recreational use of marijuana. Among the statistics he cited were decreases in traffic fatalities, teen drug use and criminal behavior, along with a boost in the state’s tourism activity. He said though that marijuana businesses, whether in Colorado or those in medical marijuana states like California want to obtain bank accounts.

While Elliott said that Colorado marijuana shops have not been targets of violent crime, he said that medical marijuana dispensaries in California have been targeted by criminals for holding large amounts of cash. Current federal law have hampered marijuana businesses to use credit or debit cards for sales.

Elliott said that regulated marijuana sales are a tax boom for his state and could be for others. He also noted that the state is in a position to license and regulate the sales, noting that the Colorado Department of Revenue has taken on marijuana regulation, along with the regulation of alcohol and gambling, along with tax collection.

“We have to pay our federal income taxes and that’s fine. It’s hard to know if a cash only business is paying its taxes a bank account is helpful,” Elliott said. “It is good for the auditors and tax collectors to have a bank account to look at. They will know it’s not tied to illegal activity.”

Elliott did note that two thirds of his members have bank accounts but did not elaborate how they obtained the accounts.

Another area of concern in the banking industry has been farmers who decide to expand their crops to include marijuana alongside corn or wheat. The ABA official said a farmer who expands into marijuana would put their federal farm loans and crop insurance at risk.

Both panelists said that a letter from the U.S. Department of Justice in February indicating that DOJ would not prosecute either Colorado or Washington State for legalizing recreational marijuana as a way for banks to move forward. They indicated that DOJ is looking at updating guidance for banks in handling the intersection of state and federal laws on marijuana.

Elliott stressed to state lawmakers that the legalization of marijuana has changed the landscape in his state and Washington State. He compared it to the legalization of alcohol after Prohibition, noting that Colorado Gov. John Hickenlooper (D) had run a brewery in Denver before entering politics.

“Just like alcohol, would you rather have it be it someone like Al Capone or someone like our governor,” Elliott said of who handles sales.