Image of US Marijuana Legalization Map 4-2015
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In anticipation of legalization, the governing body that will oversee marijuana licensing and sales is preparing for something unexpected: A huge influx of cold, hard cash.
 
Legal marijuana in states like Colorado and Washington have surpassed revenue expectations in their first few years. But when marijuana businesses try to pay their taxes, the federal law that makes marijuana illegal limits their access to financial institutions.
 
Despite assurances from the Treasury Department that they would not be prosecuted, banks have been reluctant to open accounts for weed-related businesses. Some banks that accept money generated by marijuana sales fear that they may leave themselves open to federal money-laundering charges.
 
That’s forced marijuana businesses in several states to keep their profits in cash. And when those businesses have to pay sales and other taxes, they deliver those payments in cash — something almost no other business has to do.
 
“There are real public safety concerns any time you have to handle large sums of cash,” said Brian Smith, a spokesman for Washington State’s Liquor Control Board.
 
The Oregon Liquor Control Commission has taken note of trends in Washington, where Smith estimated that about a quarter of all marijuana-related businesses are paying their taxes in cash, and Colorado, where a spokeswoman for the state Department of Revenue said cash “seems to be the primary method of payment for marijuana businesses.”
 
The logistical challenges for the state are nothing compared to those for businesses, the vast majority of which have just a handful of employees.
 
“We still have people paying their taxes in cash by hiring the Brinks truck,” said Dan Riffle, a spokesman for the pro-legalization Marijuana Policy Project.
 
Oregon and Alaska, where voters passed marijuana legalization initiatives in 2014, are preparing for the cash influx. Oregon’s commission will spend $636,000 to upgrade security at its main office. The commission expects businesses to pay about $400,000 a month in sales taxes alone, meaning staffers will have to deal with at least $100,000 in cash until banking regulations are changed.
 
“The fact that states are having to put in all these extra provisions to deal with the cash is just another indicator of how problematic forcing these businesses outside the banking system is,” said Taylor West, deputy director of the National Cannabis Industry Association. “If you think the state has logistical challenges with it, imagine being a business owner.”
 
A small handful of banks have accepted accounts associated with marijuana businesses. But the extensive reporting those banks have to undertake is burdensome: Earlier this month, MBank, a small Oregon bank, said the onerous reporting requirements will force them to shutter the 70 to 75 marijuana-associated accounts they maintained.
 
“Because banks risk prosecution for violating federal law, they are … assessing account relationships that are even peripherally related to marijuana businesses and discontinuing those relationships,” the American Bankers Association said in a February 2014 report on banks and the marijuana industry. “It is important to recognize that banks are held to a high standard of compliance through regular examination. It is also important to recognize that federal officials, not only from the Department of Justice but bank regulators as well, emphasize the importance that banks must comply with all applicable laws — and this includes federal laws against marijuana.”
 
To get around bankers nervous about accepting marijuana-related money, some in the marijuana industry are using creative methods to avoid the problems caused by huge stacks of cash. One Colorado marijuana dispensary has paid employees to spray cash with Febreze before depositing it in a local bank to avoid suspicion.
 
But a broader solution will not include a chemical spray. Colorado officials are trying to secure a charter from the Federal Deposit Insurance Corp. to create a banking cooperative that could accept deposits from the marijuana industry, though the corporation has not granted approval.
 
Riffle and other legalization advocates say a federal solution is necessary. The Treasury Department has asked banks for input on how to handle marijuana deposits. Last February, the department issued guidelines that were intended to ease bankers’ concerns that they could be prosecuted for accepting donations; few banks took comfort in those guidelines. In January, the IRS reaffirmed that marijuana businesses must pay income taxes, even though their product is technically illegal under federal law.
 
In Congress, Sen. Jeff Merkley (D-Ore.) and Rep. Earl Blumenauer (D-Ore.) will introduce legislation in the coming weeks to create a “safe harbor” for banks that provide financial services to marijuana-related businesses. Their bill [pdf] would amend section 280E of the Internal Revenue Code to allow marijuana businesses to take deductions like any other business.
 
“Our legislation would provide an overdue update to federal tax law, which has not caught up to the fact that it’s 2015 and Oregonians have voted both to legalize medical marijuana and to regulate marijuana for recreational use,” Wyden said this month.
 
Rep. Dana Rohrabacher (R-Calif.) last week introduced a measure that would require the federal government to respect state laws that legalize marijuana; that measure would allow banks to avoid disclosing whether revenue was generated by marijuana businesses.
 
Congress has blocked officials in Washington, D.C., from coming up with their own rules and regulations for the legal sale of marijuana, which voters approved in 2014. Washington’s attorney general has warned D.C. Council members that even holding a hearing on marijuana sales could violate federal law.
 
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