By Ross Kaminsky – 5.26.15
Often the first thing I’m asked when traveling outside of Colorado is a half-question half-joke about how many people in the state I now call home are stoned. Although I’m pro-legalization, I’ve never touched marijuana and it seems as if I’m not alone: even though the state passed — by a 10-percent margin — a constitutional amendment in 2012 legalizing “recreational” (but still highly regulated) marijuana sale and use, sales tax receipts have underperformed expectations.
I have more context than the average American on this issue: I used to live in Amsterdam. In that wonderful city — where, I repeat, I never touched the stuff — you drink coffee at cafés but at “coffee shops” you ingest marijuana, whether by smoking or eating cookies or brownies or by who knows whatever clever delivery system the 21st century has on offer. What I noticed the few times I was in a coffee shop with friends or even just walking by The Bulldog was that the majority of the patrons were not Dutch.
I suspect the same is happening here, with marijuana tourism fueling a substantial fraction of the recreational pot sales in the state. One company in Colorado’s fledgling pot tourism industry offers four-hour tours during which participants visit dispensaries and “grow” operations, “enjoy free sampling on the cannabis friendly luxury party bus” and “end our day with a smoke out…with delicious munchies, ganja and drinks.”
It sounds like a bad ’70s movie but this is serious business which other states are watching closely, wondering whether the potential public revenue and private employment benefits are worth the cost and effort of regulation, of reforming state banking laws and pushing for parallel federal reforms, of how to deal with “edibles” (one of the biggest post-legalization issues in Colorado) and the impact of legalization on children — including everything from accidental ingestion to the prescription of high-CBD strains such as “Charlotte’s Web” to treat seizure disorders. (CBDs are pharmacologically active ingredients in marijuana but do not get you “high,” a feeling created by another chemical called THC. Many high-CBD strains are specifically engineered to be low in THC.)
Dozens, perhaps hundreds, of families have moved to Colorado seeking help and hope in the smoke or oil of what the federal government still classifies as a Schedule I controlled substance, meaning that according to Uncle Sam it has “no currently accepted medical use and a high potential for abuse.” While pot is on Schedule I, meaning that doing medical research on it is nearly impossible, drugs on Schedule II — laughably categorized as less dangerous and more useful than weed — include oxycodone, methamphetamine, and cocaine.
Politicians outside of Colorado are starting to pay attention. Three U.S. senators, Cory Booker (D-NJ), Kirsten Gillibrand (D-NY), and, not surprisingly, Rand Paul (R-KY), have introduced the CAREERS Act which would, among other things, move marijuana from Schedule I to Schedule II within the Controlled Substances Act, remove CBD from the definition of marijuana (thus removing high-CBD low-THC strains from current regulation as controlled substances), abate the risk of federal prosecution for marijuana-related activities that are legal under state law, and prevent banks or banking regulators from discriminating against marijuana-related businesses that are operating legally under state law.
The banking issue is critical: Without an ability to deposit the cash from its sales at a bank, a legal marijuana business becomes an obvious target for violent crime while being tempted toward tax evasion. But banks, being federally regulated, are wary of becoming involved with a business selling a Schedule I substance directly to consumers.
Guidance issued last year by the Treasury’s Financial Crime Enforcement Network (FinCEN) did not help given its laundry list of burdensome requirements for banks including “reviewing the license application (and related documentation) submitted by the business for a state license to operate its marijuana-related business” and “ongoing monitoring of publicly available sources for adverse information about the business.” What bank manager is going to want to deal with all that and still face the risk of an officious federal regulator saying that the bank has abetted money laundering?
A Colorado-approved application for a marijuana- and hemp-related credit union has been sitting at the Federal Reserve for six months, waiting for approval of a Fed “master account” that it would need to operate. One of the backers of the credit union says that he hopes the Fed will act within the next few weeks as it has no legal basis on which to deny approval.
Last month, an Oregon-based bank that had begun to offer similar services in Colorado not only canceled those plans but, due to the cost of regulatory compliance, said it would close the accounts of businesses that had thought they’d found a banking home. As the bank’s CEO noted, those people would probably need to take their money in cash since “I can’t think that a cashier’s check would be of any help to them.” I bet the Bandidos would love to know the dates of those transactions.
In February, the IRS fined a Denver dispensary for not electronically paying employee withholding taxes. When the company argued that it could not pay electronically because it could not get a bank account, the IRS denied its appeal even though the firm’s taxes are paid by the due date (and in cash, of course) directly at the local IRS office.
The national implications of Colorado’s marijuana legalization don’t end with banking. Bordering states such as Kansas, Nebraska, and Oklahoma are none too happy to have marijuana coming into their states. Since they can’t stop every car driving east on I-70, the latter two states have filed a lawsuit with the Supreme Court of the United States arguing that “The Constitution and the federal anti-drug laws do not permit the development of a patchwork of state and local pro-drug policies and licensed distribution schemes throughout the country which conflict with federal laws” and that “In passing and enforcing Amendment 64, the State of Colorado has created a dangerous gap in the federal drug control system enacted by the United States Congress.”
Colorado’s new Attorney General, Cynthia Coffman, recently filed a brief with the Court asking for summary dismissal of the suit, saying that “The Plaintiff States’ attempt to selectively manipulate Colorado’s marijuana laws—leaving legalization intact but eliminating large swaths of state regulatory power—is a dangerous use of both the Supremacy Clause and the Court’s original jurisdiction, and it is unlikely to redress the Plaintiff States’ alleged injuries.” This less than neighborly conflict is only possible because of the senseless federal position on marijuana.
Congress has a particular problem now that the District of Columbia has — with a stunning 70 percent of the voters in support — legalized pot. Perhaps a little Maui Waui might make legislators get along better, or at least make C-SPAN a lot more fun for the rest of us to watch.
I don’t smoke pot and I warn my young children away from it. But the genie of marijuana legalization is not going back into the bottle, nor should it in a free society. All jokes aside, Colorado is leading the way in understanding both the benefits and perils of legal pot and of its regulatory framework. Other states, rather than stamping their feet and running to the feds, should watch this laboratory of democracy and learn from our success and our temporary failures.