Cannabis And Banks: The Multibillion Dollar Dilemma

Current Federal Banking Regulations Are Harming The Cannabis Industry

New York Stock Exchange, banks iStock / JJFarquitectos

Taxes on marijuana reached nearly $1 billion dollars in 2018 and with nationwide legalization being touted by 2020 presidential candidates, the bigger picture of legal marijuana in society is coming into focus.

Although marijuana is becoming more widely accepted each day, there is still an uphill battle with weed and the government. As states with fully legal, recreational weed embrace the plant, the federal government is far from it. As it stands, weed growers and sellers in legal states aren’t even allowed to use federal banks to store the money they make from their product.

In response to the challenge, some have proposed alternative methods to help keep the industry alive. Recently, Oregon lawmakers proposed a bill to bypass the Federal Reserve entirely and create a new banking system. Cash and cryptocurrency plans have also been suggested, which also opens the doors to security problems.

Marijuana And States’ Rights

Marijuana, Medical, Cannabis Sativa, Cannabis Indica,

iStock / sand86

Marijuana is still considered an illegal substance by the majority of the United States, and more importantly, the federal government.

Federal law designates the plant as a schedule one drug under the Drug Enforcement Agency’s classification system. This means that the drug is considered highly addictive and cannot be used for research or sale in any circumstance.

That, of course, should cause some head scratching as not only is medical marijuana legal in many states, but it’s recreationally legal in others.

The confusion comes from how weed is legalized, to begin with. When a state chooses to legalize the plant, they do it through their own state laws. In the grand scheme of American law, a state that legalizes marijuana does so with a set of rules and regulations to keep people safe and offer guidelines on what you can and cannot do.

However, those rules only apply to that one state. Recreational marijuana is legal in both Colorado and California, but the specifics on how much you can own, how much you can sell, how much it can be taxed and more differences between each state.

Technically, even with state laws to legalize weed, it is still illegal in the eyes of the federal government and if you put money from a marijuana-related business in the bank, you can be charged with money laundering.

American law works through a hierarchy in relation to other laws around the country. City law must follow state law, which must follow federal law. This system, in theory, keeps every state from becoming its own monotonous entity that conflicts with the country as a whole.

It’s through that system that we have uniform rules on taxes, transportation, and other nationwide matters.

However, as evident with items like marijuana, this system doesn’t always mean certain parts are enforced. In the eyes of the federal government, states with legal marijuana are breaking the law and can be punished if administrators want. They haven’t chosen (but have threatened) to do so.

While these states allow people to continue recreational sale, they can’t use banks for their businesses. Banks operate with federal laws and federal law states that you can’t use banks for illegal things like marijuana.

That doesn’t mean these laws are permanent. The American Banking Association wants more laws to help clarify how marijuana businesses should run and what problems need to be addressed.

In October 2018, the ABA, which is the largest group representing United States banks, sent out a survey to members asking for their stories regarding the cannabis industry. Forbes reported that the call for submissions is meant “to help illustrate to regulators and legislators the need for greater clarity.”

Where Do Cannabis And The Banks Stand Today?

banks

iStock / Bumblee_Dee

If you’re wondering what the current process of banking with marijuana money is like today, officials from the California Treasury say it’s “a nightmare.”

Due to the cannabis industry being primarily run with cash there are some pitfalls that have popped up.

In Oregon, there is only one place in the state where marijuana money can be brought for taxes. This bulletproof site in Salem, the state’s capital, is the only place in the state where every quarter, people with large sums of cash are driving to on a regular basis.

Detractors of this system say it is not only insanely dangerous for people and businesses, but that it’s inefficient and hard on the business if they live hundreds of miles away from the site.

Another problem that The Economist points out is that a large amount of this money can be seized by police and put back into their departments. Sure, police departments getting more money sounds good, but not at the expense of people trying to run a legal business.

Each state is different, and with that comes a series of different answers to the same overall problems.

Alternative Solutions

Probably the easiest solution to the banking problems caused by marijuana is to fully legalize at the federal level.

This would not only remove the limitations that people in the cannabis industry have faced already but would open the door for more taxes, research, and data to be produced. No one knows when full legalization will be, but some states are trying to solve the problems to deal with the problems of today.

Oregon lawmakers recently proposed a bill to bypass the limitations placed upon marijuana business owners and offer some levity for their banking. The SAFE Banking Act would effectively allow weed business owners to work with bank and credit unions for more secure banking. The law passed out of the Oregon House Financial Services Committee to secure a full vote sometime soon.

Meanwhile, in Congress, a bill that would allow banks to work with marijuana businesses in states where it is legal recently advanced in the House.

One of the other prominent solutions that have popped up in recent years is cryptocurrency. Touted as a banking solution that goes above the federal banking issue altogether, companies like PotCoin have said that the digital currency can go where regular money can’t.

There become problems, however, when getting into the real-life applications of using cryptocurrency every day.

Aside from Bitcoin, there isn’t a real uniform cryptocurrency that everyone has gotten behind to make business dealings easier. There are also the security concerns of online banking, such as hacking, forgetting valuable information, or losing access.

Ultimately, it will come down to Congress to decide the fate of marijuana businesses. With a number of 2020 presidential candidates already jumping out on the pro-pot side, it isn’t out of the question that marijuana could become fully legalized in the next couple of years.

When that day comes, the questions on how banks should handle marijuana will need to become answers.

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