Conscious Care Cooperative has a solid footing in a growing
industry, with three storefronts in Seattle and a loyal customer base.
But for much of the last two years, the nonprofit medical-marijuana
provider has lacked one business basic: steady access to a bank.
The cooperative has bounced among five financial institutions, and
four others rejected the cooperative outright, said CCC's president,
Nate Chrysler. In one case, a bank closed the account without notice.
"They froze our funds, and we didn't know it until the checks started bouncing," Chrysler said.
The medical-marijuana industry in Washington, after two years of wild
growth, is struggling to move out of the gray market and into business
legitimacy. Already on shaky legal footing because of conflict between
state and federal law, dispensaries are now bogged down by troubles with
banking and federal taxes.
In some cases, dispensaries — unable to find a willing bank — are
operating solely with cash. That complicates everything from payroll to
tax preparation while heightening the risk of robbery.
Some dispensary owners say they've resorted to euphemisms — such as a
"holistic healing center" — when trying to open a bank account.
That's in part because federal authorities have warned banks that
handling receipts from marijuana sales remains illegal under federal law
and could violate money-laundering laws.
The conflict is not isolated to Washington, one of 16 states — plus
the District of Columbia — to allow therapeutic use of marijuana for
certain patients.
Aaron Smith, executive director of the Washington, D.C.-based
National Cannabis Industry Association, estimates that half of
dispensaries nationwide lack a bank account, which he blames on pressure
from federal banking regulators.
"It is a widespread problem that threatens the entire industry," he said.
Advocacy groups are lobbying Congress for changes to banking law and
the IRS code that acknowledge the legitimacy of an industry estimated at
$1.7 billion.
Despite President Obama's indication during his campaign that he
would be more laissez-faire, his administration has been more aggressive
in targeting the booming industry than previous administrations. In an
interview with Rolling Stone published last week, Obama reiterated that
his administration would not prosecute patients, but gave no assurance
to businesses.
"I never made a commitment that somehow we were going to give carte
blanche to large-scale producers and operators of marijuana — and the
reason is because it's against federal law," Obama said. "I can't
nullify congressional law."
Dispensaries as
"collective gardens"
Washington voters approved medical marijuana in 1998, but it has
developed into an industry — from storefront dispensaries to mobile THC
testing labs to cannabis-infused sodas — only in recent years.
Industry advocates failed in the past two years in Olympia to get clear protection for dispensaries.
Instead, most dispensaries operate under a broad — some prosecutors
would say mistaken — interpretation of state law that allows groups of
up to 10 patients to grow 45 plants in a "collective garden," and to
share the costs.
Dispensaries run those gardens, and patients join just
long enough to obtain marijuana.
The state does not license or regulate dispensaries — leaving that to
cities — but does want them to pay taxes. The Department of Revenue
collected $755,764 in sales and business taxes in 2011 from 50
dispensaries.
With an estimated 135 or more dispensaries statewide, many
medical-marijuana providers aren't paying. Seattle, the state's
marijuana mothership, has issued 79 business licenses to
medical-marijuana organizations, according to a Seattle Times analysis
of city data.
The state has begun taking a closer look, auditing two dispensaries, said Revenue spokesman Mike Gowrylow.
Banks avoiding
"unknown risk"
Green Hope, a nonprofit patient network in Shoreline, has been
without a bank account since last fall, when Walla Walla-based Banner
Bank dropped them, said co-founder Laura Healy.
She now pays employees in cash, and uses cashier's checks or prepaid
Visa cards to purchase supplies. She said she's tried "every bank in
town" since then, but all refuse to open an account when she describes
Green Hope. Other cash-only dispensaries opt to put ATMs in the lobby.
"I have a business license and federal tax ID number, but not a bank
account," Healy said. "They on one hand treat me like a normal
businesses, then on the other hand treat me like a criminal."
Of the five banks contacted for this story, only BECU answered
questions about medical-marijuana accounts. Banner Bank, which
dispensaries once saw as welcoming, did not respond to repeated
inquiries.
BECU spokesman Todd Pietzsch said those accounts often involve large
cash deposits, which require heightened scrutiny and reporting under
federal banking and money-laundering laws.
"We took a look and found there's a lot of unknown risk and
uncertainty in this business," he said. "At this point in time, it's
probably not in the best interests of our membership" to bank with
medical-marijuana businesses.
Money-laundering violation?
Federal bank regulations do not specifically prohibit doing business
with the medical-marijuana industry, and Attorney General Eric Holder
told Congress in December that the Justice Department would not make it a
priority to go after bankers who did.
But in June, Holder deputy James Cole issued a memo warning that
"those who engage in transactions involving the proceeds" of marijuana
sales "may be in violation of federal money-laundering statutes and
other financial laws."
The U.S. Attorney's Office in Seattle has not contacted banks
regarding medical-marijuana accounts, said Emily Langlie, spokeswoman
for Seattle-based U.S. Attorney Jenny Durkan.
The Cole memo sent a chill through the banking industry, said Sam
Kamin, a University of Denver law professor who has written about
marijuana regulation. "It's a great threat because it allows the federal
government to do what it wants without using scarce resources."
Months after the Cole memo, Colorado Springs State Bank, which
marketed itself to Colorado's huge medical-marijuana industry, closed an
estimated 300 accounts.
Lance Ott, executive director of Guardian Data Systems, a
Vancouver-based financial consulting firm, said he knows of no financial
institution in Washington that openly banks the industry. Most of the
major credit-card processors, as well as PayPal, also refuse
medical-marijuana accounts.
"That doesn't mean there aren't people who don't have a friend
willing to work with them. A lot of it is behind the scenes," said Ott.
"The banks need to show liquidity on the balance sheets."
Doing taxes with
"room full of attorneys"
Squeezed between federal regulators, reluctant banks and an ambitious
industry, some medical-marijuana operators have looked into forming
their own bank. Chrysler, of Conscious Care Cooperative, said he and
business partner Trek Hollnagel investigated starting a credit union
last year, but opted not to.
Colorado lawmakers this year debated launching a credit union as
well, but the plan died, in part out of fear of a federal backlash.
In Congress, several lawmakers, including Rep. Barney Frank, D-Mass.,
introduced bills to ease banking access and to amend an IRS provision
that restricts business deductions for medical-marijuana operations.
A campaign to change the tax law, run in part out of Seattle, started
when an Oakland, Calif., dispensary, Harborside Health Services, was
hit with a $2.5 million bill in October for back taxes. That bill hinged
on an interpretation of IRS section 280e, which prohibits business
deductions for drug traffickers.
The Harborside audit has reverberated through the industry. The
director of one Seattle dispensary, speaking anonymously for fear of
drawing federal attention, said he prepared his 2012 taxes with "a room
full of attorneys."
"They're really making it very difficult to try to do business," said
Oscar Velasco-Schmitz, an ex-Microsoft software engineer who runs
medical-marijuana Dockside Cooperative in Fremont. "It's trying to run a
business with a handicap, a government-imposed handicap. These are
growing pains."
He, like Chrysler, declined to name their current bank. After going
through five bank accounts, Chrysler said, "Best not to say."
By
Jonathan Martin
Seattle Times staff reporter
Jonathan Martin: 206-464-2605 or jmartin@seattletimes.com.
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