What Happens Now That Banks Can Work With Marijuana Distributors?

With the release of President Obama’s recent guidelines allowing the banking industry to conduct business with marijuana distributors, new doors began to open for both industries. For the first time, marijuana professionals will be able to bank in a legitimate system without fear. All of the 20 states (and Washington D.C.) legally allowed to operate a marijuana based business can conduct business with their bankers in an honest interaction. No longer do the business owners need to fear that they will have accounts shut down, or face criminal charges. Banks no longer have to worry about violating money laundering statutes. Burdens on both sides have been significantly reduced, but not completely.

As the new measures do help on a state level, the real changes cannot happen until the federal government begins to reclassify marijuana and change the landscape of this thriving industry. As the march towards marijuana legalization continues, it is high time that measures are put in place for legitimate business owners to be able to bank and pay taxes like any other industry. For now, these states and all involved are left with positive, yet slightly gray, skies ahead.

What Can Happen

As stated above, stresses are relieved from both sides of the transaction. Distributors and others in the marijuana business now can bank in a way that acknowledges their legitimate existence in the marijuana industries. Most of the time, to actually deposit their money, these people had to set up holding companies or bring money in through their own personal account. If caught, they faced the loss of their account as well as a visit from state and other agencies. Once a bank noticed the large deposits, a red flag would go up and the account would be investigated and most likely closed.

The other option they could take would be to store the money in their own safes or on location. This made countless marijuana businesses susceptible to theft. While Depression Era banking may be ideal to a few, most would rather have the safety of their money in the bank. As one owner, Mike Cuthriell, told the Washington Post, "“When we were incorporated, we didn’t reference the business in too much detail with the bank...But now we can take advantage of small-business loans, and that’s been difficult for our industry.”

On the banking side of things, bankers can now conduct business without fearing for their own legal safety. Potential charges of money laundering would make any law abiding person feel tense. When dealing with large amounts of cash, it comes as no surprise that these institutions are on such high alert. Now, banks can grant loans, accept payments, and treat a marijuana company just as it would any other account. On the state level, things are looking up for the two industries. On a federal level, the positivity isn't as clear.

What Can't Happen

The federal government still lists marijuana as a Schedule 1 controlled substance. The argument for marijuana reclassification will undoubtedly rage on for quite some time. The problem is that until there is some sort of resolution, marijuana businesses still cannot operate as a legitimate business until the federal government allows them to be.

Claiming deductions for a marijuana industry are still incredibly hard, as the company is seen to be profiting from Schedule 1 drugs. Like in banking, some have gotten around their troubles by claiming partial deductions and other sneaky practices.  Cuthriell went on to discuss his struggles with the federal government, “While we’re generating revenue, we’re not cash-flow positive yet. And we’re not certain that we’ll be able to write off traditional business expenses, which will have a large impact on our finances.”

Until a reclassification happens, many companies, such as Cuthriell's, are left in limbo. The Department of Justice has essentially vowed to let them operate their businesses without intervention, but how can they operate without the same advantages provided to other upstanding businesses? Unlike the Department of Justice, the IRS has never sworn to make things a little less stressful on the industry. Until reclassification can happen the IRS will still view marijuana as an illegal drug, thus stifling a growing industry.

The Road Ahead

In short, reclassification can happen. If it does, the IRS will be able to recognize these companies as they are seen on a state level. In the meantime, these road blocks make the industry incredibly frustrating for owners that must be seeing a huge future looming in their near futures. Democratic Congressmen Jared Polis (D-CO) and Earl Blumenauer (D-OR) recently introduced the Marijuana Tax Equity Act that would end the federal prohibition and allow taxing to be assessed. With some support behind them, many are hopeful this will get through. Yet, with partisan politics the way they are, many are not expecting much to change in the near future.

For now, the marijuana industry is left to walk a fine line where state and federal rights are very different. On one level they are upstanding businesses in the community. On the other, they are Schedule 1 drug owners. Any road towards change will be laden with roadblocks and hurdles to overcome. While this is a massive step forward for the marijuana industry, signs point to a change happening sooner than later. As profits continue to skyrocket for states with marijuana allowed in some form, the government is sure to take more notice as time goes on, and will presumably act accordingly.

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