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Survey of Marijuana Law in the United States: Issues with the Banking Industry

Banking Issues with the Legalization of Marijuana

Federal banking laws have essentially created a "cash & carry" marijuana industry.  Banks cannot accept funds from marijuana businesses for fear of criminal liability for "aiding and abetting" a federal crime and money laundering. This is because on the federal level marijuana possession and sale are federal crimes. No credit card accounts and no merchant accounts are permitted. This has created a huge security problem for marijuana businesses dealing with large sums of cash. This situation could be fixed by the Treasury Department if it assured banks that they will not be prosecuted for taking money from legal businesses or if Congress passed a law outlining legal marijuana banking rules. 

Articles on Banking Issues Facing the Marijuana Industry

Bank on Marijuana: A Legitimate Industry Warranting Banking Access

Author: Deborah L. Dickson 

This Note criticizes federal anti-money laundering laws that create a gridlock with states’ drug laws legalizing the distribution of medical or recreational marijuana. This federalism dilemma denies marijuana businesses equal access to banking. Consequently, marijuana businesses face an impossible situation without such access. The implications arising from this problem result in more than just an unbanked class of businesses, but severe consequences flow from stigmatizing marijuana businesses as criminal. Marijuana businesses face a deprivation of property and, in some cases, even a loss of liberty. The triggering event to these consequences is when banks have unfettered discretion to report any and all marijuana businesses to federal authorities. While the federal government has attempted to alleviate the situation by creating a special reporting standard for banks servicing marijuana businesses, this attempt merely solidifies underlying issues already in place that unfairly alienate marijuana businesses from banking altogether as an unbanked class of businesses. This Note proposes a different approach to remove banks’ discretion over reporting marijuana businesses by placing such discretion squarely upon state agencies, which are ultimately responsible for vetting legitimate marijuana businesses from those that truly wish to skirt the law.

There’s a public safety component to this [problem]. . . . Huge amounts of cash—substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited—is something that would worry me just from a law enforcement perspective.1

-Former Attorney General Eric Holder Jr.


Banks, Marijuana, and Federalism

Author: Julie Anderson Hill 

Although marijuana is illegal under federal law, twenty-three states have legalized some marijuana use. The state-legal marijuana industry is flourishing, but marijuana-related businesses report difficulty accessing banking services. Because financial institutions will not allow marijuana-related businesses to open accounts, the marijuana industry largely operates on a cash-only basis—a situation that attracts thieves and tax cheats. This Article explores the root of the marijuana banking problem as well as possible solutions. It explains that although the United States’ dual banking system comprises both federal- and state chartered institutions, when it comes to marijuana banking, federal regulation is pervasive and controlling. Marijuana banking access cannot be solved by the states acting alone for two reasons. First, marijuana is illegal under federal law. Second, federal law enforcement and federal financial regulators have significant power to punish institutions that do not comply with federal law. Unless Congress acts to remove one or both of these barriers, most financial institutions will not provide services to the marijuana industry. But marijuana banking requires more than just congressional action. It requires that federal financial regulators set clear and achievable due diligence requirements for institutions with marijuana-business customers. As long as financial institutions risk federal punishment for any marijuana business customer’s misstep, institutions will not provide marijuana banking.

Investing in Cannabis: Inconsistent Government Regulation and Constraints on Capital

Author: Adrian A. Ohmer 

Despite the federal government’s stance on cannabis, and the current and historical spending to wage the War on Drugs, recent polls and legislation suggest that sentiment among American voters has shifted in favor of legalization. One of the most significant recent developments in the history of drug regulation and prohibition in the United Sates occurred on November 6, 2012, when voters in Washington and Colorado voted to legalize the possession, production, and recreational use of cannabis.12 On the same day, Connecticut and Massachusetts voted to become the 17th and 18th states, respectively, to join the club of states that allow cannabis for medical purposes. Additionally, in October 2013, California announced that it would form a panel headed by the Lieutenant Governor to draft a possible 2016 ballot measure to legalize cannabis in the state. All of these developments at the state level fly in the face of the federal government, which has declared cannabis to be of no medical or other legal use and placed the crop on the most restrictive list of illegal substances, accompanied by drugs like heroin and MDMA. This note’s focus is on the future of investing in the growing legalized cannabis industry. In Part II, it will provide a brief history of federal and state regulation of cannabis. Part III will discuss the current role of the federal government in regulating the cannabis industry. Part IV will explore the current avenues of access to capital for the cannabis industry. Lastly, Part V will provide suggestions for the federal government and state governments to reduce investment risk that exists in the cannabis industry.

The Real Green Issues Regarding Recreational Marijuana: Federal Tax and Banking Laws in Need of Reform

Author: Elizabeth Dolan McErlean

This Comment argues that if the federal government refuses to enforce the CSA and instead allows states to offer for sale recreational marijuana, it must reform the banking and tax laws that hamper the creation of legitimate businesses. First, in the area of banking, Congress should enact legislation allowing banks to offer financial services without fear of prosecution; anything less leaves financial institutions subject to prosecution, and continues the status quo that forces otherwise law-abiding businesses to operate on a cash-only basis. First, in the area of tax the IRS should suspend the penalty that marijuana businesses are assessed for paying employee-withholding taxes in cash until the banking issue is resolved. Second, and most importantly, Congress should exempt state-licensed marijuana businesses from § 280E, enabling owners to deduct necessary and ordinary business expenses from their federal income taxes. This Comment proceeds as follows: Part II provides a brief legal history of marijuana in the United States describes state action to legalize marijuana for medical use and the federal government’s response explains the structure of newly enacted state recreational marijuana laws describes the relevant banking and tax laws that impede effective regulation. Part III of this Comment analyzes how Congress can reform federal banking and tax laws to foster the creation of legitimate businesses. Part IV explains how the success of states like Colorado and Washington in implementing regulatory systems will have a dramatic impact on whether more states move to legalize recreational marijuana use.

Rocky Mountain High: The Impact of Federal Guidance to Banks on the Marijuana Industry

Author: Tyler T. Buckner 

This Note considers the implications of these recent federal guidelines issued to financial institutions with respect to their freedom to do business with the state-sanctioned marijuana industry. It also discusses whether viable legal alternatives might be available to allow growth in the burgeoning marijuana markets while still remaining faithful to the federal government’s position regarding marijuana as a dangerous drug worthy of prohibition. This Note attempts to balance competing economic and governmental interests in an emerging industry that continues to evolve amid a tumultuous national landscape. This Note argues that current guidelines are excessively onerous for financial institutions and without greater flexibility, state-sanctioned marijuana businesses will not have access to vital financial services. Furthermore, without some change in the existing structure, the problems associated with all-cash businesses will continue for marijuana businesses operating legally under state law. The exclusion of valuable tax revenue from government coffers and investment capital from the marketplace these businesses generate will also persist.

To Weed or Not to Weed? The Colorado Quandary of Legitimate Marijuana Businesses and the Financial Institutions Who Are Unable to Serve Them

Author: Rachel Cheasty Sanders

In 2012, Colorado voters passed Amendment 64, legalizing recreational marijuana. Marijuana, however, remains an illegal controlled substance under federal law. As a result of federal anti-money laundering laws, financial institutions risk prosecution if they provide services to customers whose funds derive from illegal activities. The Obama Administration issued guidance to help both law enforcement and financial institutions navigate this murky area. This guidance directed U.S. Attorneys to focus their resources on prosecuting persons whose activities implicate any federal priority designated by the Department of Justice. If state-legal marijuana businesses adhere to state law and financial institutions follow proper protocol, there should be little chance of prosecution. However, the guidance provides no guarantees, and most financial institutions refuse to take the risk.

The Unintended Consequence to Legalizing Marijuana Use: The Banking Conundrum

Author: F. Shu-Acquaye

Marijuana is legal for either medicinal or recreational use in many states. However, the cultivation, use, possession, and sale of marijuana is illegal under federal law. Thus, a State that has legalized the use of marijuana is in direct conflict with federal law. This Article analyzes the problem legitimate marijuana businesses and financial institutions face regarding revenue from the cultivation and sale of marijuana. Specifically, this Article examines the risks a financial institution faces when in business with a legitimate marijuana business. Further, this Article recommends that Congress should act to create federal consistency in regulations concerning financial institutions that are in business with legitimate marijuana businesses.

What Inconsistent Federal Policy Means for Marijuana Business Owners: Washington's I-502 and the Federal Controlled Substances Act

Author: Kimberly Houser

Under current federal law marijuana is still a Schedule I substance which is causing a variety of legal problems for marijuana business owners in states that have recently enacted laws permitting the sale of marijuana for recreational purposes. Because Schedule I labels marijuana as a dangerous addictive drug with no medical uses under federal law, business owners are dealing with numerous challenges relating to banking and taxes in relation to their marijuana dispensaries with the potential threat of federal criminal action. The article first discusses the history of state marijuana laws, Washington State’s policy on marijuana, federal law and enforcement of marijuana laws, and concludes with how federal marijuana policy is impacting businesses in states that have legalized certain uses of marijuana.

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