Colorado’s medical marijuana industry, considered to be worth a fraction of what the recreational-use business will be, ponied up more than $9 million in sales taxes in fiscal 2012-13, state records show.
It was nearly $6 million the fiscal year before.
And all of it was deposited into JPMorgan Chase Bank, one of three banks with contracts to hold state funds.
There is nothing in those contracts that deals with marijuana-derived money, which is, technically, subject to federal seizure should any of it be linked to illegal activity.
And by federal law, marijuana is still an illegal drug.
As recreational marijuana businesses struggle to find banking services for a multimillion-dollar industry — just as banks struggle with federal laws that essentially prohibit them from offering those services — the state is able to do what the industry cannot.
Even as Colorado openly banks the very money banks say they’re prohibited from accepting — although some acknowledge doing so “quietly” — several state agencies can’t exactly explain how it’s happening. There are no rules, no memos, no opinions, no laws or anything else that officials can point to that clearly says the state can bank pot-derived income.
Yet it has been doing so since voters legalized medical marijuana in 2000.
There’s plenty of information, however, stopping banks from accepting marijuana businesses’ business, and the industry has railed at how huge a problem it can be for a cash-only business.
“The state treasurer has to put it somewhere,” reasoned Fred Joseph, who retired as Colorado’s commissioner of banking Wednesday, the day legal recreational pot sales began. “As to where the authority comes from to make it legal, I have no answer to that, honestly.”
JPMorgan Chase simply reasons that the state collects tax revenue legally from licensed businesses — and that’s all the banking giant will say.
“Our state and municipal clients legally collect taxes and fees from millions of businesses and residents,” spokeswoman Mary Jane Rogers said in an e-mail exchange.
Wells Fargo, which also has a contract to bank state tax revenues, though not the marijuana-derived taxes, simply says it won’t comment about its banking clients.
Industry advocates scoff at any attempts to justify the different treatment.
“State agencies and the federal government both accept money from marijuana businesses in the form of tax payments, bonds and licensing fees,” said Betty Aldworth, deputy director of the National Cannabis Industry Association. “In fact, marijuana businesses pay two to four times the rate of other businesses in federal taxes. Bankers holding accounts for a state with legal marijuana businesses but closing the accounts of those legal, regulated businesses are kidding themselves if they think they aren’t handling marijuana-related money.”
Officials at various state agencies — revenue, banking, attorney general’s office — simply shrug when asked how it is Colorado can find a bank to put pot-derived revenues that come from businesses that legally cannot have a bank account of their own.
The Colorado Department of Revenue, which collects the taxes and licenses the marijuana businesses, waves around a number of letters and memos from the U.S. Department of Justice as its justification — letters that simply say how the federal government is more interested in certain kinds of high-level illegal activity, without giving a firm nod to banks that doing business is acceptable.
“The state does not differentiate the tax revenue from which industry it is collected when depositing with the bank, and the state will continue to operate in this manner,” revenue spokeswoman Daria Serna said.
Essentially, tax money is legal even if its source isn’t.
“The bottom line is that banks have been told not to bank marijuana businesses while nothing has been said about banking governments, which we have done for decades,” said Don Childears, president and CEO of the Colorado Bankers Association and a member of the state’s marijuana-implementation task force.
“It’s not been an issue because, quite simply, it’s not been raised by the government,” Childears said. “It has been raised very pointedly for the businesses.”
DOJ officials have no explanation why it’s OK for government to bank pot-derived income.
“As stated previously, the DOJ and the Department of the Treasury are looking at the regulatory issues that legalizations have presented, and they’ve been looking at that for a number of months,” spokesman Jeff Dorschner said.
In Washington state, Bank of America says it will bank state revenues derived from recreational and medical marijuana sales.
State Treasurer Jim McIntire told The Olympian newspaper he wasn’t “too worried about it” and that BofA was probably too big for the federal government to raid.
Colorado Treasurer Walker Stapleton’s office wouldn’t comment for this story, but a spokesman acknowledged that the office could not locate any specific permission for it to bank the marijuana-derived tax revenues.
Joseph said the issue of pot-derived revenues being banked by secondary businesses — landlords and utility companies among them — is “only going to get bigger as recreation sales get bigger.”
Said the NCIA’s Aldworth: “Frankly, it’s easier for an underground drug dealer to have a bank account than a legitimate marijuana business.”