Pubdate: Sun, 20 May 2018
Source: New York Times (NY)
Copyright: 2018 The New York Times Company
Author: Julie Weed


Charity Gates phones her contact each month to make an appointment.
When the time comes, she and a colleague drive around Denver,
collecting stacks of $20 bills she has stored in various safes since
the last delivery. She counts the cash and places it in small duffel
or sling bags, carrying up to $20,000 at a time.

She then drives to a gray two-story office building downtown and parks
on the street or in a pay lot nearby. Ms. Gates fears being robbed, so
the two dress simply to avoid attention and use different vehicles and
delivery days to vary their routine. "We hold our breath every time we
go," Ms. Gates said.

Passing armed guards in the lobby, Ms. Gates walks into a room and
hands her bags to a group of people waiting to run her money through
counting and counterfeit-detection machines.

This is how she pays her taxes.

Ms. Gates runs Colorado's Best Dabs, a company that processes cannabis
to extract concentrated oils that are used to create marijuana-infused
"edibles" like brownies and teas. She is among the growing number of
entrepreneurs who find themselves operating in legal gray zones, as
more states around the United States move to legalize marijuana while
the federal government still regards it as an illegal substance on par
with heroin and LSD. People may be able to open stores and sell their
products to customers in the 30 states that have legalized the drug
for medicinal or recreational use, but they find themselves without
access to banks to provide them with loans or checking accounts.

"We can get fined for moving a light switch without telling the city
building department, but we can't get a bank account," Ms. Gates said.

What has resulted is a cash economy, with many like Ms. Gates making
monthly and annual tax payments in hard currency instead of with
checks or electronic transfers.

Companies that grow, process or sell cannabis products reported an
estimated $12.9 billion in revenue in 2017, according to BDS
Analytics, an industry group in Boulder, Colo. Up to $4.7 billion was
collected in related taxes.

For most other businesses, paying taxes often means using the
Electronic Federal Tax Payment System, an online portal run by the
Internal Revenue Service that allows people to transfer funds from a
bank account to the Treasury Department. But without access to banks,
marijuana entrepreneurs are left to pay in a decidedly more manual

"Imagine feeding $20,000 of cash through a machine, one $20 bill at a
time," said Ms. Gates of the tax payment process. "It can take two or
three hours each time."

The federal government has a history of taking a hard-line view of
this industry. In 2015, the Federal Reserve Bank of Kansas City
likened Colorado's legalization of marijuana to allowing "trade in
endangered species or trade with North Korea."

But that hard-line is beginning to change, which could mean that down
the road, federal regulations might loosen up.

Senator Chuck Schumer, Democrat of New York, said last month that he
would introduce a bill decriminalizing cannabis. And President Trump
recently suggested that he would be open to signing a law that would
allow states to control their cannabis industries without threat of
federal prosecution. A business group, the National Cannabis Industry
Association, recently produced a video encouraging citizens to ask
Congress to "support legal small businesses that are successfully
replacing the criminal marijuana market." More than 200 of its members
will visit Washington starting Monday to lobby Congress on issues
including banking and taxes.

John Boehner, the former speaker of the House who had been one of the
most staunch opponents of legal marijuana, said his views have
changed. He recently joined the advisory board of Acreage Holdings, an
investment firm dedicated to the cannabis industry. Bill Weld, the
former Republican governor of Massachusetts who also has joined the
Acreage advisory board, said he believed cannabis could help wean
people off opioids.

Shutting off access to the federal banking system presents a variety
of risks, said Peter Conti-Brown, an assistant professor of legal
studies and business ethics at the University of Pennsylvania's
Wharton School. The chance of income being underreported increases, he
said, as does the chance of employee theft or even armed robbery as
large amounts of cash move through the business ecosystem.

"Marijuana businesses and banks are caught in the crossfire," Mr.
Conti-Brown said.

Some credit unions and small banks that are chartered by their state,
not the federal government, have tried to fill the void by offering
basic banking services to the cannabis industry. George Allen,
president of Acreage Holdings, said the companies he has invested in
have been able to find banking in the 11 states where they operate,
which has, among other things, allowed them to pay taxes
electronically or by check.

Tai Cheng, the chief operating officer for Aloha Green Apothecary in
Hawaii, a state where marijuana is legal for medicinal purposes, runs
his company almost completely in cash.

Aloha Green grows cannabis plants, processes harvests and sells a
variety of marijuana products at a dispensary in Honolulu. Mr. Cheng
says he has been unable to find any bank or credit union in the state
that will open a bank account for his cannabis company.

Places like Hawaii have begun trying technological solutions in the
absence of a legislative ones. The government has been allowing
dispensaries to use CanPay, a mobile payment system for medical
marijuana patients run in partnership with a Colorado-based credit
union. Dispensaries can use money paid via CanPay to write checks or
make electronic payments that pay taxes and other bills. But so far
for Mr. Cheng, not enough patients have used the system to make it a
reliable source of electronic funds.

Mr. Cheng says he just wants to operate like any other business. When
he pays his taxes, Mr. Cheng has private security teams accompany him
to the state office. He says he has studied the government building's
different entrances and exits, and shows up at different times and
days to make himself less of a robbery target. (Linda Takayama, the
director of Hawaii's department of taxation, said that no incidents
have been reported so far.)

"We dutifully pay our taxes, and the government happily accepts it,"
he said. "It's ridiculous to have to jump through all these hoops."
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MAP posted-by: Matt