Why Colorado’s Pot Industry May Be Cash-Only For The Foreseeable Future

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Colorado’s recreational marijuana industry reportedly generated well over $5 million in just the first five days. But every one of those transactions was cash-only, because although the industry is legal for the dispensaries, aiding that industry may not be so legal for financial institutions.

Doing business with a known purveyor of marijuana remains a violation of federal money laundering law. So most financial institutions won’t grant loans, bank accounts, credit cards, or other financial services to marijuana businesses, and often deny those services even to individuals who have invested in a marijuana business.

Recognizing that a cash-only marijuana business is a magnet for crime, and imposes onerous burdens on marijuana businesses, the Justice Department has said it will develop guidance for financial institutions on marijuana. But with marijuana businesses already in full force and employees carrying briefcases of cash home, no guidance has yet been issued.

The Denver City Council issued a proclamation this week asking for marijuana industry access to financial institutions. And the Wall Street Journal is now reporting that a forthcoming memo will clarify prosecutorial priorities, but won’t draw any clear lines. The memo would explain that prosecution would likely target, for example, business with marijuana entities whose aim is illicit trafficking beyond what is permitted by the state law.

An ambiguous memo on what sorts of transactions authorities might target is likely not enough to change financial services’ policies. Banks risk prosecution not only from the Department of Justice, which would retain the right to pursue crackdowns, but also penalties from regulators such as the Federal Deposit Insurance Corp. At the very least, financial institutions such as Bank of America have asked for specific instructions from the Justice Department on what they can and can’t do. And even those instructions would likely not insulate banks from prosecution risk without a change in the law.

While Justice Department statements that they will not prioritize prosecution of businesses complying with a robust state law have somewhat eased concerns about the sorts of federal crackdowns that plagued the medical marijuana landscape in the past, federal marijuana prohibition continues to hamper state marijuana laws in a number of ways. For marijuana businesses, it means not just inaccess to financial institutions, but no tax deductions of business expenses. It also means investors whose credit eligibility is at risk may be disincentivized from investing in marijuana. For marijuana users, it may mean mean loss of employment. And for everybody, it means critical research on marijuana is suppressed.

Because no change in DOJ policy will eliminate this risk, bills have been introduced in Congress to address the banking issue, allow marijuana businesses to deduct their expenses. and roll back federal marijuana prohibition.