Sometimes, the “laboratories of democracy” approach can get a little messy. Take the legalization of marijuana. Many states, including Washington, have been experimenting with this, allowing the sale and possession of marijuana even as it remains illegal at the federal level.
While there have been occasional disputes between Washington, D.C., and states where marijuana has been legalized – and former U.S. Attorney General Jeff Sessions threatened at one point to go after legal state dispensaries – for the most part, the federal government has allowed these experiments to continue.
But the tension between the state and federal approach to marijuana has one particularly harmful impact on the state experiments: Federal banking laws force state cannabis businesses to deal in cash only. Most banks won’t touch marijuana money out of fear of running afoul of federal regulations.
What does this mean for the cannabis business in Washington and other states where it’s legal? Inconvenience for customers, for one, who must pay in cash (most dispensaries have ATMs on their premises, but still). That’s not all, though. Without access to banking, marijuana businesses can’t write checks for anything. Not for rent, utilities, taxes, anything.
So, even though marijuana sales are legal, marijuana sellers end up operating like criminals, carrying around briefcases full of cash to pay off legitimate operating expenses. The large amounts of cash the businesses have to keep on hand make them attractive targets for thieves.
The laws also make it nearly impossible for marijuana start-ups to get bank loans to finance their new businesses. It’s crazy, and it’s counterproductive.
All-cash businesses are much, much harder to regulate – and both state and federal governments have a clear need to ensure that legalized marijuana is properly regulated, monitored and taxed. Checks and banks generate paper trails.
Even those who oppose legal pot should understand that the current situation is problematic.
Which is why support is building for federal legislation to allow banks to work with legal marijuana companies. Washington Treasurer Duane Davidson, a conservative Republican who voted against legalizing pot in Washington, recently wrote a letter to Congress in support of the legislation, calling it a public safety issue.
“A drop in all-cash transactions will greatly increase safety for those involved,” Davidson said. “It will also make tax fraud less likely and tax collection and compliance easier.”
Attorneys general from 38 states have also signed onto a letter urging passage of the legislation, which has been introduced in both chambers of Congress. They point out the size of the industry alone justifies a change – $8.3 billion in sales in 2017, all handled outside regulated banking.
“The resulting grey market makes it more difficult to track revenues for taxation and regulatory compliance purposes, contributes to a public safety threat as cash-intensive businesses are often targets for criminal activity, and prevents proper tracking of billions in finances across the nation,” said the letter, which was signed by Washington Attorney General Robert Ferguson.
Making sure that banks don’t have to fear breaking federal regulations if they provide products and services to legal marijuana industries “would bring billions of dollars into the banking sector, enabling law enforcement; federal, state and local tax agencies; and cannabis regulators in 33 states and several territories to more effectively monitor cannabis businesses and their transactions,” the letter also said.
Bankers support this legislation. Spokane Valley banker Greg Deckard went to D.C. in February to testify in favor of the SAFE Banking Act. He said he wasn’t interested in pushing for federal decriminalization of marijuana, just a recognition of the realities of the current situation.
“To myself, I’m saying, the cat’s already out of the bag,” Deckard said. “You guys should have done something five years ago.”
Whether lawmakers support legalization or not shouldn’t be the issue. Many states have legalized marijuana. Until or unless that experiment is deemed a failure or the federal government tries to shut it down, it is in everyone’s interest for the industry to be as safe as possible.
That won’t truly be the case until these legal businesses can access normal, regulated financial institutions.