Most people are aware of the ongoing conflict between federal and state laws on marijuana. While marijuana remains flatly prohibited and subject to criminal punishment under federal law, 19 states and the District of Columbia have legalized medical marijuana, and two have legalized recreational marijuana. The most pressing and well-known issue for medical marijuana dispensaries and the customers who rely upon them for medical relief is threats of prosecution and asset forfeiture from federal officials. Many dispensaries, facing jail time, eviction, or seizure of real estate, have opted to shut down entirely.

But what is less known is that even those dispensaries that haven’t been targeted for federal prosecution or have thus far survived it are subject to fundamental legal obstacles to operating their business. These obstacles discourage potential marijuana distributors and growers from applying for licenses, and make it more likely that they will operate at least partially under the table and outside the legal system.

1. Medical marijuana businesses can’t open a bank account. Banks that do business with marijuana distributors are considered money launderers, so dispensaries cannot bank or access other bank services legally if they are open about their status as a marijuana dispensary. Even those who have skirted this by opening accounts in their personal names or being vague about the nature of the account have had their accounts terminated, often jumping from bank to bank. One Colorado state bank known for allowing dispensary clients terminated more than 300 accounts after the Department of Justice warned in 2011 that they would pursue money laundering charges. Without a bank account, dispensaries have no good means of even paying employees, let alone storing their money or paying their exorbitant taxes (see below). Washington State officials who contacted banks about their position said they are waiting from a statement from Attorney General Eric Holder on the federal government’s response to two ballot initiatives legalizing recreational marijuana before they reconsider their position. Some dispensaries are trying to form their own banking cooperative to skirt these restrictions.

2. Medical marijuana businesses have scant access to loans. Because of the same banking regulations that bar bank accounts, marijuana dispensaries that are open about their purpose typically can’t take out loans from traditional financial institutions or the Small Business Administration — eliminating the major sources of funding for most small businesses. But they may also have difficulty borrowing funds from nontraditional lenders, including the sorts of “angel investors” that have popped up in the industry. An Arizona ruling last year on an attempt to enforce a loan to a medical marijuana dispensary refused to enforce the loan contract, because the money was for an illegal purpose under federal law.

3. Medical marijuana entrepreneurs can’t open a credit card account, and many are blacklisted from any credit card use. “Over the past two years, Amex and other major credit card companies – including Visa and MasterCard – have distanced themselves from the medical marijuana industry, refusing to process transactions at dispensaries and closing merchant accounts for MMJ centers,” Medical Marijuana Business Daily reported last week. Now business owners are learning that they have been added to a “merchant match list,” which makes it almost impossible for that person to open an account for any other unrelated business, stifling many entrepreneurs who might want to dip their toe into the marijuana industry. This blacklist can even affect businesses in which one owner with a minority stake in the company is on the list. Without access to loans, dispensary owners who enter the business because of a passion or expertise about medical cannabis rather than financial means will be all-the-more reliant upon partners and investors, who may be deterred from entering a business that will tar their credit eligibility.

4. The IRS won’t let marijuana businesses deduct any of their business-related expenses. Although the IRS is happy to take marijuana dispensaries’ money, a tax code provision that bans any tax deductions related to “trafficking in controlled substances” has made their business very expensive. While some IRS rulings have held that expenses unrelated to marijuana distribution might be deducted, that ruling has been construed narrowly, and leaves most marijuana businesses with a hefty bill and few permissible deductions. After the owner of the largest U.S. dispensary lost his challenge to the 2011 IRS rule, he said, “I see only two outcomes here. Either this IRS assessment has to change or we go out of business. There really isn’t a middle ground for us.” Thus far, this dispensary and others continue to operate.

All of these obstacles stem from the same federal ban under the Controlled Substances Act that enables criminal prosecution or asset forfeiture against marijuana businesses, and even if federal officials stopped prosecuting dispensaries altogether, these issues would chill state attempts to make dispensation of medical and/or recreational marijuana above-board, regulated for health and safety, and taxable. All of these issues could be resolved by legislation that eliminates federal penalties for those actions that comply with state marijuana laws.

In the wake of calls from several Latin American leaders to end the failed war on drugs, a new report by an international alliance of major Western Hemisphere nations flags the potential benefits of decriminalization and/or legalization. Although the 200-page Organization of American States report shies away from drawing conclusions, it definitively states that “a public health approach is needed to address drug use” and that “decriminalization of drug use needs to be considered as a core element in any public health strategy,” while incarceration “runs counter to this strategy.” In a cost/benefit analysis, the report also identifies the significant potential benefits of legalization, while noting that countries seem poised at this point only to legalize marijuana:

Legalization could substantially reduce the criminal justice costs of enforcement of prohibitions, which has dominated estimates of total spending on drug control in countries as different as the United States and the Netherlands. The costs of crime itself, generated primarily by illegal status and enforcement, dominate estimates of the social costs of drugs. Enforcement costs, however, would not disappear entirely. Ensuring that sellers comply with regulatory restrictions, for example of not selling to youth, requires law enforcement efforts, though these costs are likely to be smaller than amounts currently spent in many countries on drug enforcement.

Morbidity and mortality could also decline for legalized drugs. The illegal status of the drugs is a primary cause of overdoses, both because it creates uncertainty about the purity of what is being purchased and because it encourages use of adulterants that can themselves have dangerous effects. In a regulated legal regime, the drugs sold would be of known purity and ingredients would be listed on the label. HIV, long associated with heroin injecting, might be substantially reduced if heroin users no longer had to conceal their habits and share needles. Increased use and dependence would cut into these gains, as these drugs still present health risks even when purity is known and use does not have to be clandestine.

Additional consequences of legalization could include reductions in market-related disorder and criminal violence, as well as reductions in corruption of the criminal justice system and of political authority more generally. This assumes that countries are capable of putting into place and implementing effective regulatory regimes that do not result in a large parallel black market for drugs, an assumption that is somewhat doubtful in light of Chapters 6 and 8 of this Report, which note the linkage of violence in many countries in the region to weak institutions subject to penetration by drug trafficking organizations. […]

Negative consequences must also be taken into consideration. It is impossible to know with certainty how much drug use and dependence would increase in a legalized regime, but it is reasonable to assume that greater availability, under conditions of legality and especially if commercialized, would lead more people to use drugs.

The report goes on to explain why legalization is likely to lead to increased experimentation and possibly drug dependency. These issues, however, could be separately addressed through public health policies that would better address drug dependency whether or not a legalization regime is in place.

The group makes explicit that the report is not intended to be conclusory, but only to present information and options. But the objective tone makes all-the-more compelling the report’s identification of numerous potential benefits and significantly fewer costs. As Drug Policy Alliance Executive Director Ethan Nadlemann points out, “it would have been inconceivable just two years ago that the OAS – or any multilateral organization – would publish a document that considers legalization, decriminalization and other alternatives to prohibitionist policies on an equal footing with status quo policies.” He cites evolving U.S. views, as well as strong calls from Latin American leaders to end the drug war that prompted plans for a United Nations summit, as key to this shift, and predicts that the report “is sure to have legs in a way that few reports by multilateral institutions ever do.” The report has already been endorsed by Colombian President Juan Manuel Santos and will be presented to the 35 member states in June.

Since Congress recognized the gaping racial disparity between mandatory minimum sentences for crack offenses and cocaine offenses and reduced the ratio from 100-to-1 to 18-to-1, courts have grappled with when and how to apply the statute to already-decided cases. Last year, the U.S. Supreme Court ruled that the reductions in the Fair Sentencing Act applied to at least those cases decided before the law was passed, but not yet sentenced. But questions remain about whether the statute applies retroactively to tens of thousands of other inmates who might seek reduced sentences.

On Friday, a federal appeals court panel issued a sweeping decision that held the reduced sentencing ratio should apply retroactively to all cases, not just because that was the intent of the 2010 Fair Sentencing Act, but because failure to do so would be unconstitutional. In a powerful statement about the troubling history of drug sentencing, Sixth Circuit Judges Gilbert Merritt and Boyce Martin write:

The old 100-to-1 crack cocaine ratio has led to the mass incarceration of thousands of nonviolent prisoners under a law widely acknowledged as racially discriminatory. There were approximately 30,000 federal prisoners (about 15 percent of all federal prisoners) serving crack cocaine sentences in 2011. Thousands of these prisoners are incarcerated for life or for 20, 10, or 5 years under mandatory minimum crack cocaine sentences imposed prior to the passage of the Fair Sentencing Act. More than 80 percent of federal prisoners serving crack cocaine sentences are black. In fiscal year 2010, before the passage of the Fair Sentencing Act, almost 4,000 defendants, mainly black, received mandatory minimum sentences for crack cocaine. […]

The Fair Sentencing Act was a step forward, but it did not finish the job. The racial discrimination continues by virtue of a web of statutes, sentencing guidelines, and court cases that maintain the harsh provisions for those defendants sentenced before the Fair Sentencing Act. If we continue now with a construction of the statute that perpetuates the discrimination, there is no longer any defense that the discrimination is unintentional. The discriminatory nature of the old sentencing regime is so obvious that it cannot seriously be argued that race does not play a role in the failure to retroactively apply the Fair Sentencing Act. A “disparate impact” case now becomes an intentional subjugation or discriminatory purpose case. Like slavery and Jim Crow laws, the intentional maintenance of discriminatory sentences is a denial of equal protection.

The two-judge majority opinion also suggests the court would be inclined to strike down other deeply discriminatory and draconian sentencing laws for nonviolent drug offenders, which even the Congressional Research Service has flagged as a cause of the United States’ overwhelming prison population. Unfortunately, the dissenting Judge Ronald Lee Gilman’s opinion may better reflect the view of either a full Sixth Circuit panel or the Supreme Court justices who would review this case on appeal. Gilman puts the onus on Congress to make its law explicitly retroactive, and points to the failure of pre-Fair Sentencing Act constitutional challenges to the crack-cocaine sentencing disparity.

The Illinois legislature sent a medical marijuana bill to Gov. Pat Quinn Friday, after the Senate passed a measure 35-21 largely along party lines. The measure would permit marijuana use with a doctor’s prescription for 33 specified ailments, require users, growers, and dispensaries to undergo fingerprinting and criminal background checks, and limit the number of growers and dispensaries.

The news comes as several new studies are released suggesting that marijuana may aid in post-traumatic stress disorder, Crohn’s disease, diabetes, and as a possible weight control remedy. All of these studies, however, were either performed in other countries or based on surveys or self-reporting from marijuana users, because federal agencies have blocked access to a legal supply of marijuana even for academic studies.

Earlier this month, Gov. Martin O’Malley (D) signed Maryland’s much more limited marijuana law, which provides narrow access to medical marijuana for research purposes. If the bill is signed into law, Illinois would become the 20th state with a medical marijuana law, in addition to the District of Columbia. Gov. Quinn has said he is “open-minded” about the measure.

During a Wednesday House oversight hearing with Attorney General Eric Holder that overwhelmingly focused on the invasive government search of Associated Press phone logs and the IRS, one House member took the opportunity to grill Holder on another Department of Justice issue that has provoked criticism from the left. Rep. Steve Cohen (D-TN) tore into Holder over his approach to marijuana, asking why his Justice Department is “continuing to put people in jail,” even as polling shows a majority of Americans believe the plant should not be illegal:

One of the greatest threats to liberty has been the government taking people’s liberty for things that people are in favor of. The Pew Research Group shows that 52 percent of people do not think marijuana should be illegal. And yet there are people in jail, and your Justice Department is continuing to put people in jail, for sale, and use, on occasion, of marijuana. That’s something the American public has finally caught up with. It was a cultural lag. And it’s been an injustice for 40 years in this country to take people’s liberty for something that was similar to alcohol. You have continued what is allowing the Mexican cartels power, and the power to make money, ruin Mexico, hurt our country by having a Prohibition in the late 20th and 21st century. We saw it didn’t work in this country in the 20s. We remedied it. This is the time to remedy this Prohibition, and I would hope you would do so.

WATCH IT:

In addition to the majority support for decriminalizing marijuana cited by Cohen, an even greater proportion of Americans say they think the United States is losing the so-called “War on Drugs” and that states should be allowed to decide whether marijuana is legal.

Holder said shortly after two states passed ballot initiatives to legalize and regulate recreational marijuana that he would announce a DOJ policy on a federal response. But six months later, his only answer has been that he expects an announcement “relatively soon.” Regional federal officials, meanwhile, have re-upped crackdowns on medical marijuana dispensaries, sending threat letters to dispensaries in several cities in Washington and California. And what started as a Drug Enforcement Administration crackdown has now developed into new DOJ action by regional U.S. attorneys. Just this month, U.S. Attorney Melinda Haag filed federal forfeiture actions to seize the real estate that houses two Bay Area medical marijuana dispensaries seemingly in compliance with state and local laws, including the largest dispensary in Berkeley and another dispensary that serves the Mission region of San Francisco. Haag has filed a similar action against the largest U.S. dispensary with locations in Oakland and San Jose, suggesting a strategy to hamper the industry by targeting the largest players.

Members of Congress have introduced several bills to square state laws with the federal marijuana prohibition.

Veterans and others suffering from post-traumatic stress disorder have long reported anecdotally that marijuana provides unique relief for their symptoms, but past attempts to perform scientific studies have foundered because access to a legal supply of marijuana is blocked by federal agencies. A new study released this week averted this obstacle in a brain imaging study that did not require a marijuana supply, and concluded that cannabis may mitigate the flashbacks, nightmares, anxiety, and other symptoms that plague PTSD sufferers. Medical Daily reports:

A new study by researchers at the New York University School of Medicine and their collaborators across the U.S. suggests that there is a connection between the number of cannabinoid receptors in the brain and the effects of post-traumatic stress disorder (PTSD), according to an NYU press release.

Cannabinoid receptors, or CB1 receptors, are part of a large system of chemicals and signaling pathways from the brain to the body, NYU says. They play a role in the formation of memories, and in transmitting messages about appetite, pain, and mood to the body. Studies have shown that certain chemicals, like cannabis, can combine with naturally produced neurotransmitters to activate CB1 receptors, which in turn can impair memory and reduce anxiety. […]

“There’s not a single pharmacological treatment out there that has been developed specifically for PTSD,” said lead author and NYU researcher Alexander Neumeister in the statement. “That’s a problem. There’s a consensus among clinicians that existing pharmaceutical treatments such as antidepressant simply do not work.” In fact, he added, anecdotal evidence has shown that some PTSD sufferers who use marijuana, a cannabinoid, experience more symptom relief than with antidepressants.

The reason researchers were able to link their brain research to marijuana is because it contains its own cannabinoids, which can and have been isolated to medically treat individuals with neurological disorders. This study, conducted by a major medical institution and published in a reputable scientific journal, is groundbreaking. But it also reinforces the loss to the medical and scientific communities from federal government resistance to support research on the drug.

If clinicians want to actually know how marijuana works, they will have to conduct studies using marijuana. Legal access to marijuana is controlled by one federal agency with a mission to combat drug abuse. A panel made up of representatives from the National Institute on Drug Abuse and Health and Human Services must approve a proposal for legal marijuana access. In 2011, a psychiatry professor at the University of Arizona College of Medicine who specializes in treating veterans designed a triple-blind study to test marijuana that earned approval by the Food and Drug Administration. But when Dr. Sue Sisley requested marijuana from the panel, they turned back her request, providing a range of contradictory and confusing justifications that are difficult if not impossible for Sisley to address in a subsequent request, and effectively block access to the drug for this study.

Studies like this one are needed not just to put scientific backing behind the anecdotes and to better adjust prescriptions of the substance to the some 30 percent of veterans who suffer from PTSD. They are also crucial to disputing the Drug Enforcement Administration’s classification of marijuana as a Schedule I dangerous drug with no currently accepted medical use, and Congress’ position that marijuana is illegal even for medical purposes. In 2011, the DEA once again refused to reschedule marijuana, citing an absence of rigorous study, and a federal appeals court declined to disturb that ruling. Plaintiffs argued that it is precisely the Schedule I designation that prevents the funding and marijuana access needed to perform larger-scale studies. The Schedule I designation — more severe than the designations for cocaine and opium poppy – also means the federal government recognizes no sanctioned use for the substance in spite of 19 state medical marijuana laws, and prescriptions cannot be written for marijuana.

Another study released just this month found that inhaled marijuana can abate Crohn’s disease symptoms in those who did not respond to conventional treatments. According to a 2011 survey performed in Canada and the United Kingdom, some half of Crohn’s disease patients use medical marijuana to treat their symptoms. The primary prescription drugs used to treat this disorder can cost $25,000 a year without insurance, and vary in effectiveness. This study was conducted in Israel, where medical marijuana research is encouraged by the government.

Jeffrey Skilling

Even when Jeffrey Skilling was first sentenced for conspiring in one of the largest corporate fraud schemes in modern history, he received less jail time than some low-level drug offenders sentenced to harsh mandatory minimums. But this week, Skilling reached a deal with the Department of Justice to cut his 24-year sentence to as little as 14 years, in exchange for abandoning the onslaught of appeals he has launched at his own expense. Reuters reports:

The agreement … could result in Skilling’s freedom in late 2018, with good behavior.

In exchange, Skilling, 59, who has long maintained his innocence, agreed to stop appealing his conviction. The agreement would also allow more than $40 million seized from him to be freed up for distribution to Enron fraud victims.

A resentencing became necessary after a federal appeals court upheld Skilling’s conviction but found the original sentence too harsh.

Once ranked seventh on the Fortune 500 list of large U.S. companies, Enron went bankrupt on December 2, 2001 in an accounting scandal that remains one of the largest and most infamous U.S. corporate meltdowns.

Thousands of workers lost their jobs and retirement savings, and images were beamed around the globe of staff carrying possessions out of Enron’s downtown Houston office tower, past the company’s “crooked E” logo.

Even in 2006, when Skilling was first sentenced, his legal defense was deemed one of the most expensive in history at $65 million, and in the years since he has taken his case to the Supreme Court and back on appeal after appeal. By settling, the Department of Justice not only saved itself the considerable expense of continuing this legal battle; it also gets access to the more than $40 million in seized assets Skilling had previously not agreed to surrender. As a consequence of these negotiations, Skilling’s sentence is even more disparate from the 25-year-plus sentences of drug defendants charged for low-level offenses like selling their own pain pills to an undercover informant.

If Skilling’s reduced sentence is approved by a judge during his June hearing, as is likely, Skilling will nonetheless not have had an ideal run with the criminal justice system. His lawyers made a persuasive argument that the statute initially used to convict him was overly broad. And his sentence was disproportionately high relative to alleged Enron scandal mastermind Andrew Fastow, who got only six years in prison after he testified against both Skilling and Enron Chairman Kenneth Lay. But more severe versions of these problems plague countless criminal defendants, who, rather than having the leverage to shorten their sentence or the legal resources to take down a statute, are coerced into plea deals under threat of draconian prison terms.

Hours before a Colorado Senate deadline, marijuana legalization opponents introduced a measure to repeal the newly passed ballot initiative to regulate marijuana like alcohol. The bill’s introduction Monday evening, after having become public just a few days earlier, prompted immediate reaction from the marijuana legalization community, and at 10 p.m., the bill’s sponsors backed down and took the bill off the table in the face of a filibuster threat and defeat in the House. From the Associated Press:

The last-minute maneuver infuriated marijuana legalization supporters, some of whom ran up several flights of stairs to testify against the measure when they got word it would be heard.

“You’re subverting the will of the voters,” argued Joe Megysy, spokesman for the Marijuana Policy Project, a major backer of last year’s pot measure.

Even House colleagues seemed taken aback by the late-night maneuver to ask voters again whether retail pot sales should be allowed.

“This has caught all of us a bit off guard,” said Rep. Dan Pabon, sponsor of a marijuana regulation measure in the House. He said the chances of the repeal measure getting the necessary two-thirds margin in House were “.001.”

The bill would have linked repeal to a tax measure that will go before the Colorado legislature this fall. If voters did not approve certain taxes on marijuana, then the repeal would go into effect. The sponsors said its intent was to pressure the marijuana industry to support the taxes, but it also would have pressured voters to choose between accepting taxes they might not support, or lose the ballot initiative they had previously supported. The ballot initiative garnered more votes than President Obama in November.

As the Colorado legislature completed its session, it also considered several other bills related to marijuana regulation. Although several were left in limbo, the legislature did pass a key measure that has failed numerous other times to set driving under the influence limits of 5 nanograms per milliliter. Gov. John Hickenlooper (D) has said he supports the measure. The House also passed a bipartisan resolution asking for direction from the federal government on how to proceed with regulating pot. Attorney General Eric Holder has still not announced any federal policy on the two state laws to legalize recreational marijuana.

In California, even medical marijuana dispensaries legally complying with state and local laws are being targeted by the federal government in a new round of crackdowns. But there are many cities and towns in the state that have imposed their own medical marijuana bans. And on Monday, the California Supreme Court dealt one of the biggest blows to the state industry since a law was first passed in 1996, upholding those bans as not preempted by state law. The court ruling upholding a ban in Riverside, Calif. could affect some 200 others jurisdictions that have some sort of dispensary restriction or ban on dispensaries that would be legal under state law but federally illegal (since all marijuana is federally illegal), and resolves conflicting legal rulings by lower California courts. The court explained:

As we have noted, the CUA [Compassionate Use Act] and the MMP [Medical Marijuana Program] are careful and limited forays into the subject of medical marijuana, aimed at striking a delicate balance in an area that remains controversial, and involves sensitivity in federal-state relations. We must take these laws as we find them, and their purposes and provisions are modest. They remove state-level criminal and civil sanctions from specified medical marijuana activities, but they do not establish a comprehensive state system of legalized medical marijuana; or grant a “right” of convenient access to marijuana for medicinal use; or override the zoning, licensing, and police powers of local jurisdictions; or mandate local accommodation of medical marijuana cooperatives, collectives, or dispensaries.

The bans, of course, make it more difficult for the state to implement a legal system for medical marijuana, which is why other jurisdictions have struck down local bans. In Massachusetts, a decision from Attorney General Martha Coakley issued shortly after the passage of that state’s ballot initiative held that Massachusetts law does not allow for flat-out bans of dispensaries, because it would frustrate the law’s “legislative purpose.” Coakley noted, however, that different state laws and structures may dictate different results. What’s more, California’s law differs from those in other states in that it creates a voluntary state-wide system for dispensaries to regulate themselves so that they can comply with state restrictions. Local jurisdictions have their own more specific or mandatory licensing schemes.

One thing Monday’s decision does achieve is suggest why these state marijuana laws are not likely to fall under a legal challenge by federal authorities claiming they are preempted by federal drug law, which some have mulled in response to two state ballot initiatives to legalize recreational marijuana. As the court explains, the state medical marijuana laws “remove state-level criminal and civil sanctions from specified medical marijuana activities,’ but do not create a comprehensive state system, or grant a “right of convenient access.” Other state statutes are somewhat more robust than California’s in licensing state dispensaries. None, however, create a state-run system for dispensing marijuana or a right to use marijuana for any purpose, both of which likely would be preempted by the federal Controlled Substances Act because they create a direct conflict with the criminal law, rather than simply eliminating some actors from punishment under state law.