Big Decision in Marijuana Banking
If you are in the marijuana business anywhere in the US, you know how hard it is to get a bank to accept you as a customer. To try to solve this problem, Fourth Corner Credit Union was founded to provide banking services to marijuana customers in Colorado. However, the Federal Reserve Bank refused to accept Fourth Corner as a member, which effectively prevented them from acting as a bank. The credit union sued in federal court to get that membership but was recently told by the judge that they couldn’t use the court to get the membership.
Bottom Line….It’s a Federal Issue
The US District Court in Colorado ruled that the Fourth Corner Credit Union’s case against the Federal Reserve had to be dismissed. Basically, this judge observed that, despite all the reasons it made sense to allow Fourth Corner to provide much needed banking services to Colorado marijuana businesses and their employees, vendors and customers, federal law simply didn’t allow it.
This judge had the courage to comment on the Emperor’s New Clothes, so to speak. We thought Judge Jackson really hit the nail on the head in his short opinion dismissing the case:
In short, [the US Justice Department’s Cole and FinCEN guidance memos] simply suggest that prosecutors and bank regulators might “look the other way” if financial institutions didn’t mind violating the law. A federal court cannot look the other way. I regard this situation as untenable and hope that it will soon the addressed and resolved by Congress.
What This Means for Marijuana Business Owners
While the short-term effect of the court’s decision dismissing this case may seem negative, the judge’s candor about the untenable situation may actually prompt some politicians to step up to fix federal law as it relates to marijuana. We also think that such a solution will go beyond marijuana and banking – it would begin to correct the many ways that the federal classification of marijuana as a Schedule I controlled substance is interfering with the development of sound policies to regulate and control marijuana.
The lack of access to banking creates challenges to legal marijuana businesses, including the increased risks of robbery and other criminal activities directed at the cash generated by marijuana business. Employees also experience hassles in getting paid, opening their own bank accounts, and paying their income taxes. Vendors and customers of marijuana businesses face increased risks in carrying and using cash.
But It’s Bigger Than Banking.
Beyond banking, the realm of pesticide and herbicide regulation as it applies to marijuana is largely unregulated, because the EPA and the FDA are prevented from applying their policies and regulations to a Schedule I controlled substance. This void in regulation allows many unsafe practices to occur, some innocent and others malicious. State regulators are trying to get their arms around these problems, but lack the structure and experience to address these challenges in the short term.
Federal income tax policy imposes enormous additional income tax liability on many marijuana businesses simply because they deal with marijuana. There are two obvious effect of this tax policy: first, it increases the cost of marijuana because growers and sellers must increase the cost of the product to meet their tax obligations; second, it causes many marijuana businesses to “drop out” of the tax system, creating revenue losses for government and making tax criminals out of many who object to the substantial unfairness of having their legal business activity penalized by the IRS. Increased tax costs encourage black market marijuana dealers to stay in business, because they can undercut the sales prices of the legal businesses. Tax criminals are more likely to completely exit the law-abiding sphere and join the black market.
Will the federal Patent and Trademark office allow a marijuana entrepreneur to protect from competition her intellectual property creations relating to her marijuana business? Sorry. Marijuana cultivation, sales and use are illegal under federal law, and the Patent and Trademark office won’t recognize most trademarks and patents which relate to such illegal activity.
Scientific and medical research on marijuana and its complex chemical makeup are tightly controlled by the DEA, the NIDA and the Dept of Health and Human Services. There is only one source of marijuana in the US which is authorized as a supply source for such research. Many universities and other research facilities simply aren’t willing to jump through the hoops required to conduct such research. As a result, many cutting edge developments in the use of marijuana for medical purposes are coming from outside the US.
Relatively Small Case, Big Implications
There are many other consequences of the federal illegality of marijuana. The Fourth Corner case highlights the role the US Congress can play in removing these irrational effects. Let’s hope that our elected representatives in Washington read the Fourth Corner opinion and will have the courage to fix this untenable situation.