By Joseph J. Kolb
January 31, 2014
Photo courtesy shroomery.org
Much of the $40 million in sales tax revenue Colorado hopes to collect from legal pot sales could be going up in smoke because banks and credit card companies refuse to work with sellers, claims a state lawmaker.
Unless banks can get a clear signal from federal regulators that it is okay to work with pot dealers without running afoul of laws aimed at launderers of drug money, the marijuana trade will remain what it is in Colorado – an all-cash business. State Sen. David Balmer says that makes it ripe for unreported – and untaxed – transactions.
“So far Colorado has not been able to come up with a solution to the banking problem,” Balmer said. “The vast majority of sales will not be accounted for.”
Marijuana is considered an illegal drug by the federal government, and laws such as the Bank Secrecy Act carry severe penalties for banks. Last week, U.S. Attorney General Eric Holder said the feds will soon issue regulations opening banking services to state-sanctioned marijuana businesses.
“You don’t want just huge amounts of cash in these places,” Holder said in a speech at the University of Virginia. “They want to be able to use the banking system. And so we will be issuing some regulations I think very soon to deal with that issue.”
Balmer said the new rules can’t come soon enough. He believes the state was ill-prepared for what has become a booming business since the beginning of 2014. In addition to the banking issue, he said Colorado does not have enough field agents to regulate the industry.
Officials expect retail marijuana sales tax to put $19,729,867 into state coffers in the current fiscal year and more than twice that in the next.
But for now, tracking sales is all but impossible. Businesses have no bank statements to confirm revenue or deposits, and many have expressed concern about the robbery risk associated with handling large amounts of cash. Some have set up limited liability corporations to create one-degree of separation to try to open bank accounts, but if banks know about the arrangement, they often balk, according to Balmer.
And they often can tell where the greenbacks come from.
“The large cash deposits smell like marijuana, so some of the businesses are spraying the cash with room freshener or perfume to hide the marijuana smell,” Balmer said. “The banks are even more suspicious when they have a person trying to deposit a large cash deposit that smells like perfume.”
With the above realities, said Balmer, the marijuana businesses have begun buying enormous safes to store cash and are hiring armed guards to protect their stores 24/7.