Federal And Local Law Conflicts Mean Marijuana Is A Cash-Only Industry

Updated: May 27, 2015

Marijuana growers and other cannabis-related businesses are running into a major obstacle due to conflicting national and local laws.

Since marijuana and all business activities tied to it are still illegal at the federal level, all the big banks are shying away from allowing cannabis-related money to be deposited, even though it is legal in the District of Columbia plus 23 states and counting. Although the federal government has taken steps to encourage banks to accept the money the crop generates, it’s not enough to overcome existing federal laws concerning drug-related money, which can lead to a bank being shut down. It’s just too high a risk for most bankers.

In early 2014, the Obama administration issued two sets of new rules, one for the Treasury Department and one for the Justice Department, designed to reassure banks and to clear the way for legitimate marijuana businesses to move away from a cash-only basis.

The Treasury rules are designed to make it easier for banks to do business with marijuana companies. It offers guidelines on how banks can identify companies that are legal according to state laws, which would exempt them from federal rules that could shut down banks for money laundering and other drug-related penalties.

At the same time, the Justice Department sent a directive to U.S. Attorneys to not pursue banks doing business with companies that are operating legally under local laws.

Later in the year, the House of Representatives passed two bills that would also help out banks. The first bill prohibits the Drug Enforcement Agency from interfering with state marijuana and hemp laws. The second prevents the Treasury Department from spending money on penalizing banks that deal with marijuana-related businesses in compliance with local laws.

The two amendments, however, were parts of much larger bills that were more partisan, and therefore likely to die in either the Senate or through a veto.

The hang up for large banks is that they must fill out forms declaring which accounts need closer scrutiny and which ones are in good standing. They are also obligated to shut down accounts that are deemed to be too risky, including those that are suspected of being involved in criminal activity. If the banks decide state-level legal marijuana businesses are in good standing, and there is a change of federal policy, they risk being shut down.

Although big banks are staying out of the medical marijuana business until it’s federally legal, almost 200 small banks and credit unions are accepting money, Bloomberg reports. In an article about where regulations currently stand, Bloomberg’s Keri Geiger, Jesse Hamilton and Elizabeth Dexheimer say this currently $3 billion industry has a lot of cash on hand. That creates major security risks in the communities with marijuana businesses. And it also means that the money cannot be tracked the way any other business revenue is tracked.

The banks’ stance is causing other problems. Newspapers from communities with legal marijuana businesses are reporting that employees are having problems securing bank accounts, retirement accounts and mortgages because their money is tainted by the drug trade.

That raises questions about how companies that invest in medical marijuana may be affected. The industry has attracted numerous large investors since the federal rules were made, Marijuana Daily Business reports in several articles.

So where does this leave the money side of the medical marijuana industry? Until federal law changes, various banking representatives have told reporters across the country, the marijuana industry will remain a cash-only one.

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