Tag Archives: IRS

Another Perspective Pot Possibilities and Problems Banking on legal marijuana is proving dicy, especially thanks to the feds.

By Ross Kaminsky – 5.26.15

marijuana leaf


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.

Read more at http://spectator.org/articles/62824/pot-possibilities-and-problems

IRS seizes California medical marijuana provider’s bank account

By Peter Hecht
The Sacramento Bee

Published: Friday, Jun. 15, 2012


SACRAMENTO, Calif. — The Internal Revenue Service has seized bank accounts it says took in more than $870,000 in cumulative deposits in recent months, part of a federal probe into alleged money laundering involving a Sacramento marijuana dispensary.

Agents of the federal Drug Enforcement Administration and the IRS presented search warrants earlier this week on the El Camino Wellness Center, considered the largest medical marijuana provider in Sacramento.

The seizure of bank accounts, detailed in a sealed affidavit obtained by The Bee, underscores an effort by federal authorities to crack down on California medical marijuana dispensaries by employing laws traditionally used to target money transfers by narcotics traffickers.

A June 8 IRS seizure warrant cited federal money-laundering statutes and laws against improper reporting of income to seize bank accounts of the El Camino Wellness Center and its officers, Nicholas Street and Suneet Agarwal. No charges have been filed in the case.

IRS Special Agent SoEun Park said in the affidavit that Street and Agarwal, who goes by the name Sunny Kumar, distributed "illegal drugs" from "their illegal marijuana store" and conspired with "co-schemers" to hide profits from a purportedly nonprofit dispensary.

Park alleges that the men registered their dispensary with the state as a nonprofit corporation – the Sacramento Nonprofit Collective – then "concealed the proceeds from their marijuana store."

"The concealment and deposit of drug proceeds was primarily facilitated by false statements to financial institutions to disguise the true nature of their marijuana business," Park wrote.

He alleged that the dispensary operators were "commingling drug proceeds with legitimate funds, utilizing different entity names and bank accounts and frequently transferring funds between accounts to obfuscate the paper trail."

Former Sacramento federal prosecutor Donald Heller said authorities are sending a message that they will use federal drug money-laundering laws to target dispensaries that handle hundreds of thousands of dollars in medical marijuana transactions.

"I don’t think it matters if they’re nonprofit or not" under California law, Heller said "What the government sees is big commercial enterprises and they’re going after them."

James Anthony, an Oakland attorney specializing in medical marijuana regulation, blasted the account seizures as an assault on a legal California business.

"Did that (IRS) affidavit say a darn thing about these being medical marijuana collectives in compliance with state law? No," Anthony said. "There is a total disconnect."

El Camino Wellness Center opened in 2008 and last year became the first Sacramento dispensary issued a permit under a city regulatory program for medical marijuana outlets. The city is still collecting voter-approved taxes on local dispensaries, amounting to $1.1 million between July 2011 and March of this year.

Mark Reichel, the attorney representing Street and Agarwal, said El Camino Wellness Center was "a flagship for compliance" as a city-regulated medical marijuana provider.

Reichel said federal authorities raided the dispensary and the homes of both men, taking computers, cellphones and business records. In addition to the money-laundering probe, a DEA search warrant affidavit said Street and Agarwal are being investigated for conspiracy to distribute marijuana and maintaining a place for distribution.

"We’re going to try to talk to the government and see if we can work things out and explain that these guys were in compliance with state law," Reichel said.

U.S. Magistrate Dale A. Drozd approved the request to seize up to $827,435 from a Wells Fargo business account for the dispensary. The figure was based on IRS accounting of cumulative deposits made between January 2006 and August 2011.

Max Del Real, a spokesman for the dispensary, said the actual account balance was "a minute fraction" of the deposits it had received over time. Park wrote that any deposits from "sale of controlled substances" are subject to seizure.

The IRS also said it would seize up to $44,271 from a Wells Fargo account for Agarwal and deposits from two Golden One Credit Union accounts in Street’s name.

The affidavit includes allegations that El Camino Wellness misleadingly listed its services as "health" – but not marijuana – when it set up merchant services accounts for credit and debit card transactions. It said one credit card company, JPMorgan Chase, stopped doing business with El Camino Wellness upon learning it was a medical marijuana provider.

Joe Elford, legal counsel for Americans for Safe Access, an advocacy group for medical marijuana patients, said the investigation stirs questions over banking rights for dispensaries. He said just because a dispensary has money in the bank doesn’t signal a crime.

"When you deposit money into a bank, you don’t have to explain to the bank where that money came from, typically," Elford said. "And every nonprofit I know of has a bank account."

Last year, a U.S. Treasury Department criminal task force seized more than $80,000 from accounts of another Sacramento dispensary, One Love Wellness Center. The establishment closed on New Year’s Eve with no charges filed.

The latest raid worries Lanette Davies, co-operator of Sacramento’s Canna Care, one of 20 dispensaries still operating in city limits, down from the original 38.

Davies said that in recent years three different financial institutions, all aware Canna Care was a dispensary, initially agreed to service accounts for Canna Care but closed the accounts after deciding not to service medical marijuana businesses. The dispensary has another banking partner, but Davies worries she could be targeted by the government.

"It’s almost like the federal government sets you up to fail," she said. "We are not Mexican drug cartels."

U.S. prosecutors have said they are targeting marijuana businesses "hijacked by profiteers" that they contend are operating in violation of both federal and state laws – though warrants in the El Camino Wellness case make no mention of California’s medical marijuana law.

So far, federal courts have rejected legal challenges by medical marijuana advocates to the crackdown on California dispensaries.

Last year, El Camino Wellness sued U.S. Attorney General Eric Holder and Sacramento U.S. Attorney Benjamin Wagner, charging that federal property forfeiture notices – including one sent to the dispensary’s landlord – violated rights of medical marijuana users and threatened to shut down the "supply chain of medical cannabis."

A federal judge threw out the complaint.

Read more here: