Legal marijuana is the fastest growing industry in the United States, according to a new market research report, which found that state-sanctioned weed sales skyrocketed by 80 percent last year to more than $5 billion — and the bulk of those purchases were made in cold, hard cash.
While the legal weed business has continued to boom — 23 states and Washington, DC allow some form of medical marijuana, and four states permit recreational sales — the drug remains strictly illegal under federal law. That means banks, which are regulated by the federal government, are still refusing to work with state-approved pot shops for fear of running afoul of money laundering laws. The situation has made handling those huge piles of cash an increasingly tricky issue for marijuana entrepreneurs.
Last July, a group of senators introduced the Marijuana Businesses Access to Banking Act, with the intention of bridging the state-federal disconnect.
"Forcing businessmen and businesswomen who are operating legally under Oregon state law to shuttle around gym bags full of cash is an invitation to crime and malfeasance," said Senator Jeff Merkley, a Democrat from Oregon. "It's time to let these banks serve these legal businesses without fearing devastating reprisals from the federal government."
Colorado Senator Cory Gardner echoed those concerns, saying that the continued refusal of banks to provide even basic financial services has "forced the industry to adopt an all-cash business model that fosters violent crime and puts all Coloradans at risk."
Denver's Fourth Corner Credit Union had high hopes of becoming the first financial institution in the country to cater specifically to the legal marijuana industry, but the bank's plan was dashed last year when the Federal Reserve Bank of Kansas City, which oversees the Denver financial district, rejected Fourth Corner's request for the master account it needed to operate. Fourth Corner took the matter to court, but Colorado District Court Judge R. Brooke Jackson tossed out the lawsuit earlier this month, ruling that the arrangement "would facilitate criminal activity."
The Department of Justice has issued "guidelines" for banks that wish to handle marijuana money, stating that bank regulators and prosecutors wouldn't actively investigate banks that might be working with marijuana businesses. But the guidelines also made it clear that "the DOJ reserves the right to enforce federal laws, including federal laws relating to marijuana, regardless of state law," and stressed that financial institutions are still obligated to report "any suspicious activity."
In his ruling in the Fourth Corner case, Jackson essentially said that the DOJ guidelines are worthless and that banks should abide by the letter of the law by continuing to shun weed businesses.
"These guidance documents simply suggest that prosecutors and bank regulators might 'look the other way' if financial institutions don't mind violating the law," Jackson said. "A federal court cannot look the other way."
Watch the VICE News documentary Inside America's Billion-Dollar Weed Business: The Grass Is Greener:
In the meantime, more states are expected to embrace legalization — creating even more pot businesses that are forced to deal only in cash. Pennsylvania, Florida, Ohio, and Missouri are expected to enact medical marijuana laws in 2016, while California, Nevada, Arizona, Massachusetts, Maine, Rhode Island, and Vermont could potentially approve recreational sales.
With its rapidly expanding marketplace, the legal marijuana industry is projected to generate $6.7 billion in sales in 2016, a 25 percent increase over last year, and continue growing to $21.8 billion in sales by 2020, according to a report published Monday by ArcView Market Research and New Frontier, California-based groups that specialize in the pot business.
There's no immediate solution to the banking conundrum, but several presidential candidates have called for removing marijuana from the list of Schedule I controlled substances, where it is currently classified alongside heroin, LSD, and other drugs deemed by the government to have a high potential for abuse and no accepted medical use. Such a change would allow banks to open their vaults to weed-related businesses.
And despite the federal restrictions, a handful of local credit unions and other state-chartered institutions in Washington and Oregon have permitted some pot merchants to open accounts. The marijuana industry site Leafly cited data from the Treasury Department's Financial Crimes Enforcement Network that showed 266 financial institutions nationwide maintain accounts with marijuana-related businesses. There are also some workarounds that allow customers at legal weed stores to use credit cards, but, at least for now, most of those green buds will still be purchased with greenbacks.
Follow Tess Owen on Twitter: @misstessowen