Pubdate: Sat, 15 Feb 2014
Source: Washington Post (DC)
Copyright: 2014 The Washington Post Company
Contact: http://mapinc.org/url/mUgeOPdZ
Website: http://www.washingtonpost.com/
Details: http://www.mapinc.org/media/491
Author: Danielle Douglas

BANKS GIVEN GUIDELINES ON MARIJUANA SELLERS

Obama Administration Eliminates Key Hurdle Facing Legal Dispensaries

The Obama administration on Friday gave the banking industry the 
green light to finance and do business with legal marijuana sellers, 
a move that could further legitimize the burgeoning industry.

For the first time, legal distributors will be able to secure loans 
and set up checking and savings accounts with major banks that have 
largely steered clear of those businesses. The decision eliminates a 
key hurdle facing marijuana sellers, who can now legally conduct 
business in 20 states and the District.

So far, the Obama administration has dealt with the legal dilemmas 
posed by Colorado and Washington - where state laws now allow 
recreational marijuana use - largely by choosing not to enforce the 
federal statutes. Eighteen other states allow the sale of medical 
marijuana - though federal law does not allow that, either.

Last year, for example, the administration said it would not 
challenge Colorado's and Washington's legalization of the drug, as 
long as they kept a tight rein on marijuana businesses. The 
administration agreed in August not to prosecute legal dealers as 
long as they met eight requirements, including not selling to minors.

This was not, federal officials said, a change in the law itself. 
Marijuana was still illegal, as far as the federal government was 
concerned, in all 50 states. Instead, it was just a declaration that 
the Justice Department had bigger things to worry about.

On Friday, the administration went a step further by laying out a 
path for banks to bring marijuana commerce out of the shadows and 
into the mainstream financial system.

The Treasury Department issued new rules that could make it easier 
for banks to do business with marijuana dispensers. In separate 
guidance, the Justice Department directed U.S. attorneys not to 
pursue banks that do business with legal marijuana dispensers as long 
as the dealers adhere to the guidelines issued in August.

A senior administration official, who was not authorized to speak 
publicly, acknowledged that the decision could draw legal protests 
from anti-legalization groups. Some lawmakers have complained that 
the administration is enabling an industry that is in violation of federal law.

"Marijuana trafficking is illegal under federal law, and it's illegal 
for banks to deal with marijuana sale proceeds under federal law. 
Only Congress can change these laws. The administration can't change 
the law with a memo," Sen. Chuck Grassley (R-Iowa), ranking member of 
the Senate Judiciary Committee, said in a statement.

Financial institutions have feared that they would run afoul of money 
laundering statutes by accepting money from an activity considered 
illegal under federal laws. That has made it difficult for the 
growing crop of legal marijuana dispensers who must operate 
exclusively in cash, placing them at greater risk of being robbed.

As it stands, banks have to notify federal regulators of suspicious 
activity, such as moving money from illicit activity like drug 
dealing. To address that glaring conflict, Treasury said banks now 
must file a "marijuana limited" report that says the dealer is 
following the government's guidelines, including ensuring that sales 
revenue does not wind up in the hands of criminal enterprises. But if 
the bank believes the dealer's revenue is not coming exclusively from 
legal sales, then it has to file a "marijuana priority" report to 
alert regulators.

"This is very good news," said Steve Horwitz, owner of the Ganja 
Gourmet in Denver.

Last week, Horwitz's bank, Wells Fargo, discovered that he sells 
marijuana-laced food and closed his business account.

"The opposition and difficulties to being in this industry are just 
unimaginable," he said. "Every time you think you're going forward, 
you go back 100 yards."

Horwitz said he has already had to change credit card processors and 
banks once, and was at a loss as to what his next step should be.

Now, he hopes Wells Fargo will rethink its decision. "We're good 
customers," he said. "We pay extra money for cash deposits, and we 
move a lot of money. It's in their interest to keep us."

Wells Fargo did not comment on Horwitz's case but said it is the 
bank's policy not to work with marijuana businesses. "We are 
reviewing the guidance" issued Friday, said Mary Eshet, a bank spokeswoman.

Financial firms could be handsomely rewarded for banking legal 
marijuana business. The legal U.S. industry is expected to reach 
$2.57 billion in sales this year, according to ArcView Market Research.

But the government's new rules may not be enough to assuage bankers' fears.

The Justice Department has embarked on an aggressive campaign against 
money laundering, going after banks, including HSBC, for allowing 
millions of dollars from drug traffickers, terrorists or countries 
under sanctions to illegally move though the U.S. financial system. 
Against that backdrop, bankers may turn away business that could 
paint a target on their backs.

Nothing in the guidance protects a bank from future prosecution if a 
new administration decides to prosecute state-licensed companies for 
violating federal drug laws, analysts say.

"This guidance doesn't alter the underlying challenge for banks," 
said Frank Keating, president and chief executive of the American 
Bankers Association. "Possession or distribution of marijuana 
violates federal law, and banks that provide support for those 
activities face the risk of prosecution and assorted sanctions."

As long as marijuana is classified in the same category as heroin, 
bankers will remain reluctant to do business with dealers, even if 
they are operating within the confines of state laws, analysts say.

The banks could face a civil penalty if they do not strictly abide by 
the rules laid out in the guidance, said a senior Treasury official, 
who was not authorized to speak publicly. But the official also said 
that the ultimate goal is to mitigate the risks associated with 
having these businesses operate in an unregulated all-cash system - 
not to ensnare the financial institutions.

"We'll focus enforcement on individuals or institutions who willfully 
and systematically act in contravention of the guidance, not some 
technical mishap," the official said.

Mike Cuthriell has been lucky. The owner of Metropolitan Wellness 
Center, a medical marijuana dispensary in the District, has used his 
personal bank account for his business since opening in August.

"When we were incorporated, we didn't reference the business in too 
much detail with the bank," Cuthriell said. "But now we can take 
advantage of small-business loans, and that's been difficult for our industry."

Despite the new banking industry rules, other challenges to the 
industry remain, he said. Federal tax policy makes it difficult for 
him to claim deductions on his returns, Cuthriell said.

Cuthriell said his accountant advised him not to attempt to gain any 
tax benefits from his business. The Internal Revenue Service could 
come after his business.
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MAP posted-by: Jay Bergstrom