By Micheal Fryzel
A handful of states have approved some type of legalization of medical marijuana. Other states have bills pending in their legislatures or are placing referendums on the ballot for voters to decide whether individuals should be allowed to purchase the drug at retail outlets.
Businesses have opened in all states where marijuana is legal as well as in other states in anticipation of approval. Space has been rented by entrepreneurs, staff has been hired, furnishings have been purchased and, where legal, the plants are blooming and sales are being made.
All these businesses, however, face a major problem. In the eyes of the federal government, marijuana is an illegal drug and production or purchase of it could get you arrested. The legislatures that have legalized it have done so claiming it is a state’s rights issue. They believe the medical benefits of the drug need to be recognized and are tired of waiting for Congress to make it legal in all states.
As a result of the federal/state conflict over legality, the businesses in operation are unable to find a depository institution that will handle their financial transactions. Banks and most credit unions are federal insured and their federal regulators are reluctant to allow them to offer their services to the marijuana industry. Allowing a bank or credit union to open a “pot” account could result in the regulator incurring the wrath of the Justice Department, Treasury, FBI, CIA or even Homeland Security. Who can name one regulator willing to take a stand against those protectors of the universe?
Not Safe or Practical
The marijuana business, whose revenues have been estimated to already be in the tens of millions of dollars, are operating as a cash business. Not being able to establish a business relationship with a financial institution, they are relegated to making and accepting payments with cold, hard cash. Legal tender is the only means by which they can transact business. This is certainly not a safe or practical way.
The State of Nevada is attempting to address the problem by passing legislation that would allow savings and loans to carry private rather than federal deposit insurance. A unique approach and one that on paper looks good. But looking good on paper doesn’t make it practical or doable.
What company would want to incur the wrath of the federal government or of the regulator in states where they do business by serving the seemingly lucrative medical marijuana industry? My guess is there are none.
Just One Solution--And Therein Lies the Problem
So there is only one solution and therein lies the problem. The United States Congress must take the handcuffs off federally insured financial institutions, as well as the businesses engaged in private insurance. They must remove the fear in the hearts of regulators across the country who cannot tell their regulated entities that “pot” accounts are legal. All Congress has to do is legalize medical marijuana.
Considering the strong, diverse feeling among the electorate about this issue and the accomplishments of Congress as of late, the chances of that happening are about equal to a wisp of smoke surviving in a wind storm. In other words, not very “high.”
Michael E. Fryzel is an attorney and advisor to the financial services industry with offices in Chicago, Illinois. He is a past Chairman and Board Member of the National Credit Union Administration. He can be reached at meflaw@aol.com.