Last week, a Justice Department rep told a Senate committee the federal government was working on a solution that would allow marijuana businesses in Colorado to legally use the banking system -- something that's been officially forbidden up until now.
Among the Colorado agencies lobbying for such a fix is the Denver Auditor's Office, which would rather have shops deal with standard financial institutions than employ less secure ways of handling cash -- such as ones involving a particular convenience store.
"There's a 7-Eleven on the corner, right across the street from the Webb Building, and the joke around here is that it's the money-laundering capital of Colorado," says Denis Berckefeldt, director of communication for Denver Auditor Dennis Gallagher. "That's because these guys may go in there and buy money orders rather than hauling boatloads of cash over here."
Actions like these are necessitated by the disparity between federal and Colorado state law when it comes to marijuana. While Amendment 64 allows adults 21 and over to use and possess small amounts of cannabis in Colorado, weed remains illegal under federal statutes -- and since the financial system is federally regulated, pot shops that use banks are technically violating regulations put in place to prevent money laundering by drug dealers. Berckefeldt acknowledges that some businesses have found ways to get around such edicts -- a risky tack, to put it mildly. Others, though, operate entirely as cash businesses, and in Berckefeldt's view, this approach may have even more drawbacks.
"Anytime you do this much business in cash, it's a target for crime -- and it's pretty apparent that's been going on here over the last couple of years," he maintains. "And you can't account for this money. How much have you sold? Are you paying the taxes you're supposed to be paying? How much is hidden? If you don't have a paper trail, you can't track it, and all the seed-to-sale systems in the world won't solve the problem."
Gallagher tackled this topic in a letter to U.S. Attorney General Eric Holder, sent in the days prior to last week's Senate Judiciary Committee hearing on marijuana; see it below. He shipped the same document to Senator Patrick Leahy, the committee's chairman, as well as the chairman of the Federal Deposit Insurance Corporation and the Comptroller of the Currency.
Here's an excerpt:
Businesses which can only operate on a cash basis are not only a magnet for crime and criminal activity -- a serious threat to public safey -- but are virtually unaccountable from a regulatory or taxation standpoint. As the Auditor for the City and County of Denver, I am aware, firsthand, of this serious problem, for that is exactly what we face in Denver and throughout Colorado. We have businesses growing, producing and selling marijuana and marijuana products for medical purposes, and soon, businesses that will also grow, produce and sell what is termed "recreational" or "retail" marijuana for non-medial reasons to individuals over the age of 21.
Because these duly licensed businesses cannot establish a banking relationship, they are forced to do all their financial transactions on a cash basis. In Denver, those transactions have amounted to millions of dollars annually for medical marijuana alone. Those amounts are likely to increase exponentially next year, when non-medical retail sales begin.
At the hearing itself, Deputy Attorney General James Cole, who authored a memo announcing that the Justice Department wouldn't sue to stop Amendment 64 and a similar policy passed in Washington state last November, appeared to be on the same page as Gallagher. As we reported, he acknowledged that the inability of cannabis businesses to use banks was something "we need to deal with" and the Justice Department is "working on it" in collaboration with federal banking regulators.
While these sentiments cheered Berckefeldt, he stresses that words aren't enough.
"We're happy with the fact that the federal government says, 'We've got to solve this problem,'" he notes. "But the proof is in the pudding: They need to really resolve these issues. I don't think anyone expects them to decriminalize marijuana on a federal level anytime soon, but the banking issue is huge, and has been for a long time."
Continue for more about marijuana and banking, including Dennis Gallagher's letter to Attorney General Eric Holder. As Berckefeldt points out, "the sales tax collection on medical marijuana in Denver last year was $4.2 million. This year, the estimate is that it will be well over $6 million just on medical marijuana -- and when recreational comes in, obviously it's going to be even greater."
At this point, no specifics have emerged about how the federal government plans to alleviate the marijuana banking conundrum. But most observers expect it will involve the sort of policy directives that Deputy Attorney General Cole applied to non-enforcement of some federal drug laws in Colorado -- a tactic that can be undone by future administrations.
A better approach from Berckefeldt's perspective would be for Congress to pass legislation sponsored by Congressman Ed Perlmutter that would write Colorado pot-shop access to banking into law. But he knows that's unrealistic.
"Congressman Perlmutter's bill is the perfect model for fixing this problem," he says, "but no one has a realistic expectation of that getting out of the House. If the Senate would move on similar legislation, maybe then you could get something done; you'd probably have to have a Republican sponsor in the House. But that's a long process, if it's doable at all.
"In the short term, there are policy decisions that can be made. The FDIC can remove its prohibition on banks working with marijuana businesses. And the Attorney General's Office has to move even further than they have, to make it clear there's no threat of prosecution for these banks. They really need to give these banks confidence that they won't be in trouble moving forward."
In Berckefeldt's view, such actions could be accomplished in sixty to ninety days if all parties work together. This would be ideal given the January 1, 2014 opening to recreational marijuana sales in Colorado.
"The old line about the train leaving the station is true: The train has left the station on this," he believes. "You're going to see additional states moving into medical marijuana and recreational marijuana, and that will put pressure on the federal government to do something about this."
Colorado regulators and members of the marijuana industry won't breath easy until the task is actually accomplished, he adds. "Everybody in life wants predictability about what's going to happen. We don't want to be operating on an assumption that something will be the case tomorrow when it might not be."
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Here's Gallagher's letter to Attorney General Holder.
More from our Marijuana archive: "Marijuana banking and Senate hearing: Will the fix in the works stick?"