Opponents of the legalization of marijuana in Washington and Colorado have worried that sanctioning its recreational use would increase criminal activity. While this concern is largely unfounded (careful scientific studies show little evidence of a causal link between pot consumption and increased criminal activity by its users), opponents may have missed the real way the legalization of cannabis will increase crime: By making its sellers cash-only businesses.
While 20 states and the District of Columbia have sanctioned medical marijuana, and Colorado and Washington have legalized its recreational use, the industry is largely cut off from the financial system. Federal anti-drug laundering laws have made banking difficult for the businesses selling cannabis. As a result, most of the industry currently operates outside the banking system, with some merchants unable to even get checking accounts.
Policy makers need to get the small businesses in this emerging industry connected to the financial system before real problems emerge.
Right now, virtually everything in the medical marijuana business industry is cash-only. Buying the product requires cash – no checks or credit cards. Checks are a non-starter because too few merchants have bank accounts. The major card processors Visa Inc. and MasterCard Inc. bar the use of their credit and debit cards to make purchases of the product, the Wall Street Journal reports.
Cash is King
This is on the operating side of the house as well. Without checking accounts, many of the companies pay all of their bills, including tax bills and payrolls, in cash or money orders bought with stacks of cash.
As one might imagine, this situation makes many types of criminal activity possible, as Colorado’s two senators and four of its representatives outlined in a recent letter (PDF) to officials in the Justice Department and the U.S. Treasury. Cash-filled retail outlets are targets for thieves, as are the business owners and employees when they move money to physically pay bills.
The potential for fraud emerges when merchants and credit card processors bend their rules to allow businesses to use credit cards, or when business owners use their personal accounts to give their businesses access to the banking system. Auditing and regulating these companies, and ensuring their compliance with tax laws, are also more difficult when all of the transactions are cash-only.
Fortunately, these problems are easily averted by amending federal law to facilitate connecting these businesses to the banking system. Representative Ed Perlmutter, a Colorado Democrat, has already introduced a bill to Congress to do just that. Entitled the “Marijuana Business Banking Act of 2013 (H.R. 2652),” Mr. Perlmutter’s bill keeps regulators from taking action against lenders or borrowers solely because the business seeking access to the banking system is a marijuana-related company.
Congress should pass this law. Failure to do so will increase the chances that marijuana legalization really will increase criminal activity.
Medical marijuana business Photo via Shutterstock
Interesting post and certainly not one of the first things that comes to mind when contemplating the challenges of integrating this new industry into the economy.
I agree. I did not think about the finances. I guess this business is really mostly cash based. But how will that be controlled then?
I buy weed from my dispensary with my visa card.
Hi Scott, I have to admit — this is a challenge I didn’t see coming.
I didn’t see it coming either.
But then again, I didn’t predict that the two states that legalized recreational use of marijuana have their teams going to the super bowl.
Is that a spurious correlation or a causal effect?
I am not into drugs, but I am for the legalization. Let the market decide. The crimes comes with regulation, red tape and cronyism, not free trade.
Can’t the pot heads be square and use Square payment service? 😉
I have to disagree with everyone here, I think this is the worst idea that this country could ever have. This will open many more doors that we don’t want, nor need, opened and the effects of widespread legalization of marijuana will lead to the ongoing nullifcation of other laws by states who think they don’t have to play by the rules. This country is in a big enough mess as it is and we are already being viewed by the rest of the world as less and less important every day. I didn’t realize this until a recent trip to Europe and found that the American culture has become a joke to the rest of the world. Look at the way we talk about the upcoming Super Bowl; Washington and Colorado, the two states that legalized recreational use of marijuana having a Super “Bowl”. I can’t look anywhere online without seeing that. I don’t think we should ever be judged the the select few that make us look bad, but that is how it goes in life. Making pot legal, bad idea. Making it a cash only business so regulation is almost impossible, even worse idea.
Tell us how you really, feel, Ed! 🙂
Things have sure changed in a single generation in this country.
Now: what do we do with all those people languishing for years in jail under mandatory sentencing, because they had pot? Hardly seems fair. And then it becomes a slippery slope.
Along the lines of Anita’s point about how things have changed, look at this Gallup poll…
58 percent of Americans now support legalization. When Gallup first asked the question in 1969, it was 12 percent.
Is America the freest country in the world, or not? Do you have the right to you own life, or not? As I said before, personally I am not for using drugs, but I don’t think it should be illegal to use it.
High (five) life! 😉
I find it surprising that they’re slamming the U.S. in Europe over this when “Medical marijuana is currently legal or decriminalized in the Czech Republic, Finland, the Netherlands, Portugal and Spain. Possession of (small amounts of) marijuana is generally tolerated or not penalized in Belgium, Croatia, Estonia, Italy, and Switzerland. While Germany has theoretically decriminalized medical marijuana…” I just had a guest from the U.K. spend one month here in the U.S. with me and when this topic came up on the news here, he casually remarked about how, “on a nice day in Manchester…the smell of it starts wafting in the windows,” like it was no big deal. So why laugh at us when many European countries have been more accepting of this for years? I’m not so sure that’s the part of our culture they’re really laughing at. The part that my guest brought up repeatedly and seemed to find humorous was “government shutdown” related. Wondering how a government can simply close it’s doors and walk away from it’s duties, leaving employed citizens and National Parks and the like simply hanging.
Staci: As an American in spirit (owning the domain, Americanized.org), I don’t laugh at the United States of America. I am “crying” how far it has drifted away from the ideas by the Founding Fathers…
In the case of the govt, it should close all its doors (except defense, police and military) once for all. Today’s government is over-reaching in all the areas of our lives, including what we “inhale”…
For inspiration in these troubling times, watch the TV-series, John Adams.
By the way: What is the meaning of the expression “Nickel Bags”?
Martin L – It means a small bag that will only cost you 5 US dollars. It’s a quick high thing. I know this info via other people i.e. I am not a smoker. Honestly, I wish I could separate all the ‘recreational weed’ info from all the MUCH more important ‘MMJ’ (medical marijuana) info because having this flood of info from both camps is, quite frankly muddying up my research and making it hard to report!! Ugh. This piece by Prof. Shane, however is helpful. I saw a cable show which mentioned how dispensaries are targets for armed criminals. Sad that there doesn’t seem to be a solution for that. In my humble opinion, not even decriminalization would help with the armed robberies because the criminals will always look to sell to MMJ ineligible people by stealing from dispensaries, cutting the MMJ with junk ganja, and then selling nickle and dime bags on the street illegally.
Alex Yong: How big is the small bag (weight)?
Hi Martin. I don’t remember but I think 1 is lighter than most coins