Washington shops for a bank to handle pot money
OLYMPIA, Wash. — Wanted: A bank for state government. Must offer attentive customer service. Must be able to handle several deposits a day, with drop-offs of up to 40 bags at a time. Must allow an account to be overdrafted during the day by more than $1.2 billion.
Oh, and must accept proceeds from the sale of marijuana.
As Washington shops for a bank, that last demand might not be as hard to meet as it sounds.
The state’s current banker has already agreed to it, according to the state treasurer, who says despite federal restrictions Washington shouldn’t face reprisals for banking and spending the revenue that is coming soon from pot taxes and fees.
“I’m not too worried about it,” Treasurer Jim McIntire said. “It’s actually one of the advantages of having Bank of America as your contractor. It’s unlikely, I think, that the federal government would raid them. . And they’re big enough to look out for themselves on this.”
Bank of America’s seven-year contract to hold the state’s main account runs through June 30, and the state asked for bids this month in a request that specifically calls out deposits of marijuana revenue as a must-have.
In the meantime, the state expects to start depositing revenue from Initiative 502, which legalized the recreational use of marijuana. The Liquor Control Board will receive its first fees in November from applicants asking the board for licenses to grow and sell the drug, and the Department of Revenue starts collecting taxes as soon as March after the first licenses are awarded.
Much of the revenue could arrive in the form of cash, since banks are reluctant to do business with pot dealers without changes in federal policy that treats banking of marijuana proceeds as money laundering.
Handling all those bills presents a hurdle for the state Department of Revenue. But some had suggested a bigger problem would be trying to store and spend the money.
The uncertainty was reflected in Wednesday’s quarterly report from Washington revenue forecasters, who said they wouldn’t count I-502 revenue in their projections until the Liquor Board finishes writing rules and “an agreement is reached with the federal government with respect to the legality of depositing cannabis-sourced tax receipts into state accounts.”
As recently as July, Liquor Board member Chris Marr said not a penny could be deposited without risk of tainting other state money — unless federal authorities took action. Marr has dialed back his alarms, but said last week he would still like clarity from the federal government.
Bank of America is confident, the treasurer’s office says. After all, Washington taxpayers may be breaking all sorts of laws, and that doesn’t deter the bank from taking their tax money when state government deposits it.
Its bankers have “checked this out with their compliance department and they don’t see it as any different than say, medical marijuana or any other activity,” Assistant Treasurer Wolfgang Opitz said. “There could be other illegal activities going on in this state that happen to be in the tax base.”
Medical-marijuana sellers are not regulated or licensed by the state and they operate in what some see as a legal gray area. But they are supposed to pay sales tax and business tax, which goes into the state’s bank account.
The new I-502 businesses are different. They will be licensed by the state, so revenue collectors can’t plead ignorance of the companies’ business practices. Liquor Board Director Rick Garza said he asked other state officials if the licensing would affect the state’s ability to deposit the revenue. Not necessarily, he was told. Washington is not the first state to license marijuana businesses, and the federal government has never cracked down on states’ bank accounts, Garza said.
Garza said he’s confident that the state will be able to bank and spend its revenue. The next problem to resolve is marijuana businesses’ inability to bank. Marr worries about the inefficiency of collecting cash and hopes for a federal resolution.
“We’re really not equipped to accept cash,” he said. The Liquor Board might rely on the revenue department’s collection network.
Marr is hopeful that a solution will come now that the U.S. Department of Justice has decided to allow recreational marijuana sales in Washington and Colorado to go forward. Banks say their regulators are in talks with DOJ.
Even if all those questions are answered, it will be hard for forecasters to say how much revenue the state should expect.
If tax rates don’t change, I-502 might bring in between $1.4 billion and $3.2 billion over a decade, consultants told the Liquor Board — a wide range.
The revenue depends largely on how much of the existing illegal and quasi-legal market the new pot stores can capture. The board figures they will start out with 13 percent of the market and expand to 25 percent in a year.
When will budgeters be confident enough to bank on the money?
“When we can bank on it,” House budget chairman Ross Hunter, D-Medina, told reporters. “Which means, when we can actually count it.”
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