Green is the new Black – Unless You’re a Bank

Recreational and medical-use marijuana has been legally sold in at least 29 states across the USA for some time now. It’s been welcomed by many, fought against by others, and generally slipped its way into mainstream culture and medical treatment programs across the nation.

Number crunchers BDS Analytics, who are charting the meteoric rise of the US cannabis industry, estimates that sales of recreational pot in 2018 will reach around $11billion. Yes, billion. But where that $11billion ends up isn’t quite so clear-cut, because while smoking a joint (in over half of the states in the US) is cool as far as the authorities are concerned, banking the profits isn’t.

State vs Federal law

The cannabis industry employs over 121,000 people – that’s an awful lot of tax returns. But here’s the rub. While cannabis users are happily puffing away at a pipe or munching on a brownie in cafés across the US, banks are slamming the doors shut on businesses who want to legitimately (in their view) deposit their takings into a checking account at the end of the working day. Why? Because while state legislature may be flexible on the use of cannabis, the federal law certainly is not. It regards the money earned by legitimate pot businesses as dirty, making any bank that accepts the profits of cannabis businesses dirty too. They run the risk of being immediately accused of money laundering, a felony that carries a hefty penalty. There are very few CEOs in the financial industry willing to swap a Gucci three-piece for an orange jumpsuit anytime soon.

This complicated situation has left many growers, suppliers, banks, and business owners scratching their heads. Pot café proprietors are resorting to counting wads of cash in heavily guarded and locked rooms at the end of each working day. Mattresses are overstuffed with greenbacks, as nervous banks turn bags of cash away, terrified that the Feds will indict them for money laundering on the spot.

Yet recently, the Trump administration has reportedly said that they want to investigate ways whereby the profits of the cannabis industry can finally be paid into legitimate bank accounts so that the state can get its fair share in taxes of that juicy $11billion dollar turnover. That’s hardly surprising when you consider just how much money that could bring in.

Why the confusion?

As is common in a country where you have both state and federal legislation seemingly working at odds with one another, there’s a disparity between the two on just how ‘legal’ pot really is. Close to two-thirds of states have either decriminalized or legalized pot sales for everything from recreational to medical use, while others are set to follow suit during 2018 and 2019. Neighbouring Canada is also poised to legalize cannabis in July. The pot genie is well and truly out of the bong.

However, the federal government still classifies marijuana of any description as a ‘Schedule 1 drug’, putting it on a par with hardcore drugs such as heroin. Anyone handling the financial gain of any Schedule 1 drug is, under federal law, laundering money. Once again, state law and federal law are at odds not just in one or two states, but in almost a third of the Union.

Anyone in contact with that money is breaking federal law, making it susceptible to asset forfeiture. That means the police can technically seize the cash without the need to prove that it’s the result of criminal activity, or even that any crime has been committed. It’s not surprising, then, that banks have almost universally shied away from pot money, legitimately earned or not.

The future’s bright – the future’s Bitcoin

There are, however, some potential options that mean cannabis business operators are not risking robbery and violence by having large wads of cash lying around and could potentially run their business just like any other entrepreneur. Some have suggested that this could finally be a legitimate and widescale use for Bitcoin and cybercurrency, allowing businesses to move cash around without the fear of the bank suddenly getting cold feet and foreclosing on them.

The trouble with cybercurrency, though, is that they can be volatile (as anyone who’s recently lost a fortune on the ups and downs of Bitcoin will testify), and difficult to use. There are also some questions as to the somewhat ‘dark net’ reputation of cybercurrency could end up reinstating that sense of illegality that the marijuana industry is trying to get away from.

Partner Colorado – breaking the mold

Some credit unions are offering checking accounts to marijuana businesses (albeit in violation of current federal law) with one in particular – Partner Colorado – establishing itself as the bank of choice for pot business entrepreneurs. To give you an idea of just how big Partner Colorado is, in 2017 marijuana clients deposited $931million, eclipsing just about any other US bank or credit union, legitimate or otherwise. Most of the deposits are in cash, thus removing the money from the streets and reducing the associated issue of robbery. Don’t expect a business loan to set up your marijuana café from Partner Colorado, though; currently, that’s a step too far even for them.

Death and taxes…

While the Trump administration has been scathing of the legalize pot movement (it doesn’t sit well with the Republican’s family-friendly agenda), they are keen to grab a portion of the billions the industry is worth through taxation. BDS Analytics estimates that the industry owed $1billion in state taxes in 2016 and owes another $1.4billion for 2017. That’s some serious walking-around money for the country’s financial pot (pardon the pun), and the amounts are only going to keep getting bigger as more states decriminalize or even legalize pot.

That in itself could eventually lead to a relaxation in federal law governing the banking situation, whereby money from licensed, legitimate pot businesses is no longer seen as a criminal asset but as legitimate funds. Once that happens, the banks would be free to take pot farmers and seller’s money in the same way that they take the weekly banking from the local mom and pop hardware store.

Don’t expect that to happen anytime soon, though. It would take a massive amount of federal legislature and some swift one-eighty’s concerning federal law and taxation. While Trump has a fearsome reputation for pushing amendments through at breakneck speed, this is one area that could easily get mired down in red tape all the way through both the Senate and the House of Representatives.

No change on the horizon - yet

Cannabis and its legitimacy still divide a nation. There are those who believe that not only is it a perfectly acceptable recreational and medical drug but that it could have a significant positive effect on the country’s fiscal situation, too. An estimated $21billion-dollar industry by 2020 means a hefty chunk of change when it comes to taxation.

But until the federal law changes and allows banks to take the proceeds of marijuana businesses without worrying about a visit from the Feds and an arrest warrant for money laundering, pot business owners are going to have to carry on finding alternative means of being fully paid-up, legitimate entrepreneurs. And they’re going to have to carry on dealing in cash only, too, replete with all the inherent risks that pose.