Pot problem

It may be legal to grow and sell marijuana in Washington. But using banks to borrow money or save the proceeds? Forget it.
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Medical marijuana hanging to dry

It may be legal to grow and sell marijuana in Washington. But using banks to borrow money or save the proceeds? Forget it.

It might be OK with the feds for Washington and Colorado to grow and sell marijuana within their borders. But borrowing and saving money to grow and sell pot amounts to something else.

The feds still have laws against money laundering and racketeering — meaning drug money cannot legally go into, come out of or stay within banks. Credit cards and debit cards run up against the same federal laws making them illegal to use for drug-related transactions. 

That had state legislators scratching their heads Tuesday in Olympia during a House Government Oversight Committee work session. 

"No way the banks can get involved with this type of transaction unless there are changes in the federal laws," said committee member Rep. Steve Kirby, D-Tacoma.

"It's not just risky, it's blatantly illegal, and you put your portfolio at risk," he added.

"The federal government made it quite clear. ...  This activity is illegal," said Denny Eliason, lobbyist for the Washington Bankers Association of using banks and credit cards to finance and save pot-related money. A bank cannot even receive a huge deposit of cash from a marijuana grower, processor or retail seller without violating federal banking laws.

Another wrinkle is how a Washington or Colorado marijuana businessperson will pay federal taxes when checks or credit cards are forbidden for drug businesses. Thick wads of cash could end up being sent to the Internal Revenue Service from marijuana business people and employees.

"We're in uncharted waters right now," Eliason said.

The Seattle Times reported that Gov. Jay Inslee and Attorney General Bob Ferguson submitted written testimony to Congress Tuesday about this same dilemma, arguing federal laws needed to be changed regarding legal pot businesses and banks. State legislators speculated Tuesday that the U.S. Department of Justice's recent conditional green light to Washington's and Colorado's fledgling marijuana industries might be a first step to getting the federal banking laws changed.

Under the present federal laws, pot-related businesses would have to operate on a cash-only basis since credit cards and debit cards are bank-related — kicking in electronic transferring, racketeering and money laundering laws. That means the state's marijuana businesses will likely have huge amounts of cash at their locations — attracting robbers.

Rep. Christopher Hurst, D-Enumclaw and chairman of the House Government Oversight Committee, is a police officer as well. "When I was in narcotics, there were people who made their living robbing other drug dealers. ... I think we are putting these businesses in too much peril if they have large amounts of cash around," Hurst said.

Marijuana is a federal Schedule I drug, which includes a requirement that no guns can be in the same room.

Legislators speculated that it could take years for Congress to revamp the banking laws to accommodate Washington and Colorado's marijuana businesses. Washington plans to begin accepting license applications on Nov. 18 and end the application period on Dec. 17. The licenses would be issued next March or April with the businesses supposedly opening in June 2014.

One question is whether banks can lend money to capitalize fledgling growers, processors and retailers.

And like other small businesses, marijuana operations and retailers are expected to fail at a significant rate. After 18 months, Colorado expects 50 percent of its roughly 1,000 retailers to fail. Washington is providing licenses for 334 retailers statewide. 

For exclusive coverage of the state government, check out Crosscut's Olympia 2013 page.

  

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About the Authors & Contributors

John Stang

John Stang

John Stang is a freelance writer who often covers state government and the environment. He can be reached on email at johnstang_8@hotmail.com and on Twitter at @johnstang_8