Graphic by Preetisha Sen/Medill
WASHINGTON — Jeff Kahn walked into yet another meeting with a bank that had agreed to meet with him. He sat down with the bank manager and explain everything about his business: a health clinic that treats patients with marijuana. Under laws in the District of Columbia, the Takoma Wellness Center can legally use the drug for health purposes.
Unlike every other bank that had met with Kahn, this one finally offered him an account. But less than a month later, bank officers told Kahn it would be closed by the end of the day because his business was illegal under federal law.
“We’re not doing anything illegal,” Kahn said. “It’s something I’ve experienced in so many banks – where the idea is, ‘Your money is no good to me.’ It’s very bizarre and very off-putting.”
The mismatch between federal law on marijuana and the laws in some states makes it difficult for dispensaries to find banks that will work with them. Though the Department of Treasury recently released guidelines meant to ease this relationship, bankers remain hesitant to engage with marijuana distributors.
Contrary to federal law — which places marijuana in the most dangerous class of drugs — many states and municipalities are making their cannabis laws more lenient. Most recently, Colorado and Washington became the first states to fully legalize marijuana for recreational use. Many states are drafting legislation to do the same. And with Colorado tax profits already exceeding expectations, there’s a greater incentive to regulate legal marijuana — and adjust federal law accordingly.
A regulatory mismatch
From permitting recreational use to entirely banning the drug, states and municipalities vary greatly on marijuana policy.
To date, 20 states and the District of Columbia have legalized or decriminalized marijuana for either recreational or medical use. Colorado and Washington were the most recent states to fully legalize cannabis use, effective Jan. 1. Earlier this month, the D.C. council decriminalized private marijuana consumption and changed the punishment for possession from potential jail time to a fine.
The momentum for legalized marijuana laws dates back to 1996, when vague language in California’s Proposition 215 allowed the possession and cultivation of medicinal marijuana while still prohibiting its sale or distribution.
The trend spread beyond strictly medical use, with Colorado and the state of Washington both legalizing the sale of recreational marijuana in 2012. Different cities have also decriminalized the drug for private use.
Unlike the federal government, Kahn said states are taking an approach that “encourages patient registration,” which D.C. lacks. Among the city’s three dispensaries, he said only 160 patients are registered for medical marijuana use.
“A lot of the things that we see in other states that have made the whole flow of things simpler and more fluid aren’t happening here, and some of that is because of concerns with the federal government,” Kahn said.
Discrepancies between state and federal regulations has caused problems for many marijuana manufacturers, including a Californian dispensary owner who was sentenced to two years in a federal prison for producing medicinal marijuana despite state laws permitting medical cannabis use.
“It boils down to the feds wanting to make an example out of us,” owner Robert Duncan said in an op-ed in the Huffington Post. “There’s no rhyme or reason, no formulas.”
Situations like Duncan’s would not occur if the federal government either fully legalized the drug or recognized the legitimacy of state marijuana sales under federal law.
‘Guilty until proven innocent’
Banks’ reluctance to work with marijuana dispensaries makes it difficult for Takoma to operate like a normal business, Kahn said.
Without a bank, dispensaries cannot accept credit or debit cards, inconveniencing customers. Dispensaries must spend hours tallying finances, usually easily accomplished by banks’ automatic systems, and obtaining insurance is difficult.
Massive amounts of cash also make marijuana businesses targets for robbery, both externally and with employees.
“It really is impossible for a dispensary to bank in normal ways, and so until that issue is fully resolved we have to find all sorts of clever ways to go around it,” Kahn said.
The Financial Crimes Enforcement Network, a branch of the Department of the Treasury, attempted to resolve some of those problems last month with new guidelines on how financial institutions can interact with marijuana dispensaries.
According to the guidelines, banks should request licenses and registrations from marijuana businesses’ and monitor them for “suspicious activity” or “adverse information.” That includes anything from ensuring marijuana isn’t distributed to minors to preventing transactions with gangs and cartels, drug trafficking and drugged driving.
The FinCEN document also provides detailed instructions for filing “suspicious activity reports” with the government, adding to the strain on banks.
However, the guidelines do little to resolve banks issues, said Rob Rowe, vice president and senior counsel for the American Banking Association. Most banks do not have the time or resources to constantly check their clients’ transactions, which add up quickly, he said.
“The general everyday transactions are running through those accounts, and there are hundreds of billions of those that are done every day,” Rowe said. “Instead of assuming the transaction is legitimate, you have to look at the transaction to be sure it’s legitimate. It seems a fine point, but checking and reviewing every transaction just is not feasible.”
Similar restrictions don’t apply to other businesses selling semi-restricted items like alcohol or cigarettes. That creates a double standard for those legally selling marijuana, Rowe said.
“It’s changing it from innocent until proven guilty to guilty until proven innocent,” he said.
The consequences of cannabis
Of the five drug categories, marijuana is classified as a Schedule I drug, which means it is among “the most dangerous drugs … with potentially severe psychological and or physical dependence,” according to the U.S. Drug Enforcement Administration.
“The administration steadfastly opposes legalization of marijuana … because legalization would increase the availability and use of illicit drugs, and pose significant health and safety risks to all Americans, particularly young people,” said the Office of National Drug Control Policy on its website.
According to the Food and Drug Administration, marijuana has been petitioned for rescheduling several times since 1972, but no changes in the classification have been made. The most recent decision on rescheduling the drug came in 2011, when the DEA denied a bid to change its schedule, basing its decision on lack of research and high potential for abuse.
The Schedule I classification means marijuana is not federally permitted for medical purposes, but state laws have essentially bypassed this regulation, as there has been “considerable interest” in using marijuana to treat glaucoma, neuropathic pain and chemotherapy-induced nausea, according to the FDA.
“If cannabis was rescheduled as a Schedule II or Schedule III medication, things would be dramatically different overnight,” Kahn said.
However, a recent study said marijuana does have a negative impact. According to doctors at Frontiers, which publishes science and medical journals, regular marijuana use during youth “is associated with increased deficits in poorer attention, visual search, reduced overall or verbal IQ and executive functioning.”
“Early onset [marijuana] users had significantly poorer sustained attention, cognitive inhibition and abstract reasoning,” the study said.
Legalizing marijuana would help because the tax revenue generated from sales could fund education about its effects, said Erik Altieri, communications director of the National Organization for the Reform of Marijuana Laws.
“Children are tuning out the anti-drug message,” he said. “Programs like DARE aren’t working anymore.”
Federal action required
Although the Treasury Department’s FinCEN memo recognizes the federal government’s position that “marijuana is a dangerous drug,” politicians’ statements suggest differing opinions on the issue.
Most notable were the comments made by President Barack Obama in a January New Yorker article. Obama, who has been open about using the drug as a kid, referred to it as “a bad habit and a vice” but “not very different from” cigarettes.
“I don’t think it is more dangerous than alcohol,” he added.
Still, marijuana remains an illegal controlled substance under federal law, and many government figures view it as dangerous.
After news of the president’s comments spread, Rep. John Mica, R-Fla., vilified the administration’s “schizophrenic” stance on marijuana legislation, as Obama’s view seems to be in conflict with the DEA. Mica, who held a hearing on the issue last month and has called marijuana a “gateway drug,” criticized the discrepancies between municipal, state and federal law.
During a confirmation hearing before the Senate Health, Education, Labor and Pensions Committee last month, surgeon general nominee Vivek Murthy said he would not support medical cannabis use until more research had been done on its effects.
Other lawmakers support Obama’s take on marijuana as a generally harmless substance. At a Feb. 5 hearing on marijuana policy, Rep. Steve Cohen, D-Tenn., criticized federal drug classifications.
“It is ludicrous, absurd, crazy, to have marijuana in the same level as heroin,” Cohen said at the hearing.
A week later, 18 members of Congress sent a letter to Obama urging him to declassify marijuana as a Schedule I drug — higher than cocaine and methamphetamine — asserting that it “perpetuates an unjust and irrational system” that disproportionately affects minorities.
“Schedule I recognizes no medical use, disregarding both medical evidence and the laws of nearly half the states that have legalized medical marijuana,” the letter said.
The potential influx of revenue from marijuana taxes could prompt more legislators to support policy changes. Recreational marijuana taxes in Colorado raked in more than $2 million in January, far surpassing the state’s expectations. Similar taxes on cigarettes, gambling and state lotteries may have paved the way for marijuana, Rowe said.
Banks and dispensaries alike recognize Congress’ divide on the issue, but ultimately only federal legislation can resolve the issues facing banks and marijuana businesses, Rowe said.
”It keeps coming back to the fact that until Congress changes the law, there’s not a lot the banking industry can do,” he said. “Guidance and regulation might be helpful but it doesn’t change it.”
