Cash is king in recreational pot, but business owners wish it wasn't

Meg Sanders inspects drying marijuana at her grow house in Denver. The agriculture tax
questions facing the marijuana industry are the latest wrinkle for states flouting federal drug l
aw and establishing commercial recreational pot industries. The states have settled how to tax
 marijuanaonce it's dried and ready to smoke. But they're still debating how to tax it while it's
growing. (Ed Andrieski/AP Photo)

SEATTLE— For marijuana dispensaries around the country, the days of doing business in 
cash — driving around with bill-stuffed envelopes to pay the rent, or showing up at a state 
revenue office with $20,000 in paper bags for the tax man — can't end soon enough.
It's not clear that the Obama administration's new guidance on pot-related banking is going to 
end them.The Justice and Treasury Departments on Friday issued banks a road map for 
 doing business with marijuana firms. The security-wary pot industry, including recreational 
shops in Colorado and medical marijuana operators elsewhere, welcomed the long-awaited
 news, but banking industry groups made clear that the administration's tone didn't make them
 feel much easier about taking pot money.The banks were hoping the announcement would 
relieve them of the threat of prosecution should they open accounts for marijuana businesses,
 Don Childears, president of the  ColoradoBankers Association, said in a written statement.
 It doesn't.


“After a series of red lights, we expected this guidance to be a yellow one,” 

 Childears said. “At best, this amounts to 'serve these customers at your 
own risk' and it 
emphasizes

 all of the risks. This light is red.”
Some dispensaries have managed to open accounts, sometimes by being 
less than

 forthcoming about their business, but for the most part banking has long 
been a headache
 for the 

cannabis industry. Because marijuana remains illegal under federal law, 
banks haven't 

been able to accept pot business without risking prosecution for money
 laundering or
 racketeering.
But 20 states now have medical marijuana laws on the books; two, 
Washington and 

Colorado, have legalized marijuana sales to adults; and Alaska voters this 
summer will

 consider a similar recreational pot law.With the industry emerging from the
 underground, 
states want to track marijuana sales and collect taxes. It's a lot easier to do
 that when the
 businesses have bank accounts.
It's easier on the businesses, as well. For Seattle's Conscious Care Cooperative,
 a
 medical marijuana dispensary with three branches and 11,000 members, 
the guidance 
“definitely looks exciting,”

 said Trek Hollnagel, a business consultant there.The dispensary started 
operating on
 a cash basis afterbouncing from bank to bank.

 Hollnagel said Conscious Care was always up front with banks about their 
business, and 

some, including

Bank of America, would let them open accounts — only to freeze or close 
them later on.
“From one day to the next they changed their policies,” Hollnagel said. “If all 
your funds are

 frozen for two weeks it makes it difficult to run a business. You write a rent 
check on a

 Monday,get a call from the bank Tuesday saying the account's frozen, then a 
call from your
 landlord on 

Wednesdaysaying thecheck bounced.”Instead, Hollnagel or others at the 
dispensary
 wound up driving around with $10,000 in a bank

 envelope to pay their bills. And when they showed up at the state Department 
of Revenue to

 pay their

 taxes, it would take half an hour for an agent to count the money, Hollnagel said.
“Hopefully with these changes we'll be able to go back to being a real business,”
 he said.
Maybe, maybe not.
Under the guidance, banks must review state license applications for marijuana
 customers,

 request information about the business, develop an understanding of the types
 of products

 to be sold and monitor publicly available sources for any negative information
 about the business.
The guidance provided the banks with more than 20 “red flags” that may 
indicate a

 violation of state law. Among them: if a business receives substantially more
 revenue

 than its local competitors

, deposits more cash than is in line with the amount of marijuana-related revenue
 it is

 reporting for federal

 and state tax purposes, or experiences a surge in activity by third parties offering
 goods

 or services such 

as equipment suppliers or shipping services.
If a marijuana-related business is seen engaging in international or interstate activity,
 such 

as the receipt of cash deposits from locations outside the state, that's problematic,
 too.
The banks need to file “suspicious activity reports” on their pot customers — 
designated 

either “marijuana limited,” for those believed to be complying with the federal
 government's law-enforcement

 priorities, such as keeping pot away from children; “marijuana priority,” for those
 the banks

 have questions

 about; or “marijuana termination,” for those believed to be engaging in criminal 
activity.
“They'll have to have a real awareness of the activities of their customers,” said
 Denny
 Eliason,

 a lobbyist for the Washington Bankers Association.
The American Bankers Association said banks will only be comfortable serving marijuana

 businesses if federal prohibitions on the drug are changed in law.
U.S. Rep. Denny Heck, D-Wash., wrote on Twitter that the announcement makes it “

significantly safer to regulate and operate the voter-approved legitimate marijuana 
 market in 

our state,” but agree

d the only way to truly solve the problem is to change federal law. He and Colorado
 Democratic 

Rep. Ed 

Perlmutter have introduced a bill that would allow banks and credit unions to work 
with marijuana businesses.
“We're constantly facing the threat that banks will shut us down,” said Todd Mitchem 
of

 OpenVape, a Denver company that sells electronic devices to consume marijuana. 
“It makes it very

 difficult to do business.”