The introduction of legal marijuana has produced a profitable industry and a mountain of issues. A majority of the states that have legalized the drug allow residents of 21+ to purchase up to an ounce at a time and to grow up to six plants for personal use. Although recognized as a viable treatment, marijuana is still considered illegal under federal law due to its status as a Scheduled I narcotic, making it very difficult to do business with those who produce it, sell it, or want to buy it. Banks are willing to participate in the $2.57 billion dollar industry but not until they are further protected under federal law.
It is considered a non-addictive and non-lethal drug. Called “one of the safest therapeutically active substances known to mankind” by Judge Francis Young of the Drug Enforcement Agency (DEA), marijuana is a medicinal plant that treats ailments related to pain, nausea, loss of appetite, and insomnia. As seen in animal experiments, it would require the average human to consume 40-80 pounds of marijuana (about 30,000 times the normal dosage) before reaching lethal toxic levels. President Obama acknowledged it “safer than alcohol” in a New Yorker interview.
Another insight into the president’s viewpoint on marijuana is the actions of his administration. So far, dispensaries have been required to run as a cash-only business, making it difficult to facilitate payroll for employees and claim tax breaks just as any other sales-based business would. In February, the Obama administration sent a memo giving the banking industry the ability to finance and pursue business with the legal marijuana industry. The administration has also laid out a path for banks, seeing a lucrative opportunity, as cannabis distribution is legal in 20 states, including the District of Columbia.
Although dispensaries are excited to secure loans and set up checking and savings accounts under the new guidelines, banks will continue to be reluctant to enter the cannabis industry until federal policy is changed. The Justice Department has directed attorneys not to pursue banks that do business with marijuana dispensaries as long as they adhere to the parameters issued in August 2013, including requiring banks to notify federal regulators of suspicious activity.
This creates an interesting problem, as dispensaries are fighting to follow these new laws. However, unchanged laws make it difficult to handle deposits. Banks are required to report any deposits of $10,000 or more as suspicious activity although busy cash-only dispensaries may process $25,000 per day. Customers are supplemented with ATMs at many locations, although it also creates a safety risk since many are aware of the lucrative theft prospects. With one of the guidelines being that the cash flow of the dispensary is to be expected, any hiccups such as robberies can result in cancelation of their accounts. Until guidelines are set in place for the security of banks and dispensaries, both sides are hesitant to invest further.
The Obama administration is giving banks the same security as dispensaries receive in states that provide recreational marijuana: a policy that chooses not to enforce the federal law, but not protection from federal law. Due to the fact that marijuana is still considered illegal under federal law, banks at any time can be charged with relations to drug trafficking.
The Treasury Department combats bank’s skepticism by informing them to file “marijuana limited” reports, ensuring the dispensary is operating under government guidelines to guarantee the product is not made available to minors and sales revenue does not wind up in the hands of criminal enterprises. If not, then banks are required to file “marijuana priority” reports, informing regulators of dispensaries that do not follow protocol. Failure to file these reports may result in being charged with money laundering. Banks are being assured that they are safe from further prosecution although for now it is all hearsay.
Until there is a policy that explicitly prevents prosecution from future administrations, banks have no security. Banks have no security until federal policy prevents criminalizing marijuana transactions.