Feds to Cannabis Industry: You’re Only Legitimate Enough to Owe Taxes


Richard Battle

October 26th, 2015

Policy, Top News


Marijuana businesses may be generating more tax revenue than states can handle, but the government still refuses to provide basic banking services to the sector. Earlier this week, the Federal Reserve denied clearance for a new Colorado-based credit union looking to bank the state’s $700-million-dollar legal marijuana industry, despite the Treasury Department’s guidance last year that seemed to permit these services.

Backed into a Corner

The Federal Reserve’s actions come after Fourth Corner Credit Union requested approval to legally bank Colorado’s burgeoning legal marijuana sector. After a lengthy legal dispute, the central bank made it clear that it does not intend to accept any funds connected to the sale of marijuana, saying that it remains a Schedule I Controlled Substance under federal law. The technically-private bank could therefore be risking breaking federal laws.

In court filings, the Federal Reserve said that bankers wouldn’t be led away in handcuffs for taking marijuana money, but they don’t have the right to put that money into the Federal Reserve system. The catch is that the lack of access to the Federal Reserve banking system would essentially make it impossible for a credit union to do business, since all banks rely on these systems for liquidity management and insurance.

Many experts don’t expect Fourth Corner’s case against the Federal Reserve to go anywhere, since the government tends to let the central bank operate autonomously. But, the decision does seem to contradict the government’s own sentiments, expressed in the Treasury Department’s guidance to the banking sector last year.

Who’s to Blame?

The Federal Reserve’s actions may have created confusion, but many cannabis businesses believe that the confusion is ultimately being caused by the federal government. Without a cohesive framework legalizing the drug, it’s difficult for any federally-involved agency – or quazi-governmental agency like the Federal Reserve – to make a decision. This is especially true given that some political candidates vow to re-criminalize marijuana, if elected in 2016.

The first action to solve the issue would be to remove marijuana as a Schedule I Controlled Substance, which implies that the drug has no medical value what-so-ever. With billion-dollar companies like GW Pharmaceuticals plc (NASDAQ: GWPH) focused on cannabinoid research, and the FDA approving cannabinoid-based medications, this no longer appears to be the case and the removal should be a logical next step.

The second action needed to solve the issue would be to legalize the banking of marijuana services in an official capacity rather than in a memo. Since the banking system is controlled by the federal government, state-level legalization of marijuana must be accompanied by these kinds of laws in order to open up banking access. A law that permits banking access in states where the drug has been legalized would be necessary to solve the problem.

Finding a Home for Cash

Marijuana businesses will have to deal with holding on to high levels of cash in secured vaults for the time being, which significantly complicates finances and turns these businesses into a high-profile target for criminal gangs and armed robbers.

Native American tribes may provide a solution in the interim, since they are considered sovereign nations by the federal government. By working outside of the Federal Reserve, CannaNative and similar groups are looking to diversify from casinos to banking in order to capitalize on the growing needs of the cannabis industry. The $3 billion legal marijuana industry represents quite a substantial opportunity to do just that moving forward.

Read More: CannaNative Wants to Bank the Unbankable

In the end, the federal government will have to take definitive action before canna-businesses have an opportunity to use banking services.

Image courtesy of Alex and used under Creative Commons.

This article was published by CFN Enterprises Inc. (OTCQB: CNFN), owner and operator of CFN Media, the industry’s leading agency and digital financial media network dedicated to the burgeoning CBD and legal cannabis industries. Call +1 (833) 420-CNFN for more information.

About Richard Battle

Mr. Battle has over a decade of experience in the financial markets as both a private investor and financial journalist.


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