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The “Pot” Holes on the Road to Marijuana Legalization

Published onJul 21, 2015
The “Pot” Holes on the Road to Marijuana Legalization

Legalizing cannabis is a trend that is quickly starting to spread across the United States. Colorado, Alaska, the District of Columbia, Oregon, and Washington have legalized marijuana sales, and other states are pushing for a vote to legalize the recreational marijuana business.  This increased interest in the marijuana industry stems from its success in states where it has already been legalized. Washington recently reported their tax revenue from the first year of marijuana sales at just over $70 million, and Colorado reported that the marijuana industry had generated $700 million dollars of revenue in 2014. Additionally, a study estimated that the national marijuana industry was worth $2.6 billion in 2014.

Success in this industry is not without its difficulties, however. A major issue facing cannabis companies is their inability to find banks and other financial institutions that are willing to do business with them. According to Yahoo Politics, only “four state-chartered credit unions and three banks in Washington are willing to accept accounts from cannabis related startups.” This resistance is due to the fact that the recreational marijuana industry is still illegal on a federal level. The lack of financial services available to recreational marijuana businesses forces these businesses to deal only in cash, which creates significant issues when it comes to filing taxes and paying licensing fees. These companies also face problems filing taxes with the IRS, and one business owner in Washington reported having to pay $1 million in federal taxes because of the restrictions on what these businesses can write off.

As a result, cannabis companies in Washington, in particular, are facing high taxes and staggeringly low profits. The growers, retailers, and processers in Washington each pay separate sales and excise taxes, which drive the price up and create a demand for a more affordable source of marijuana.  These high taxes are making it difficult for these startups to stay in business, as more people obtain marijuana through unlicensed and illegal sources or out of state. However, despite these roadblocks, many entrepreneurs are taking advantage of the potential for large profits in the emerging industry. In Washington, the Cannabis Tech Meetup, co-founded by Red Russak, provides a forum for individuals to collaborate and create tech support for marijuana businesses and cannabis startups in Seattle. These people are looking to capitalize on an industry that they believe has a profitable future despite the tax and financial setbacks.

To resolve these issues, advocates of the legal marijuana trade must continue to lobby the federal government to recognize their companies as legitimate business ventures.  For example, Red Russak attended a Tech Meetup at the White House to talk about his cannabis meetup in Seattle, and to discuss the issues facing the cannabis companies with regards to banking and the clashes between state and federal law. Russak brought to light the importance of financial services to these businesses, and the fact that the business owners in Washington need support from the federal government to truly thrive. The NCIA also spent around $80,000 on lobbying in D.C. for the recreational marijuana industry. Although this seems like a significant amount, it pales in comparison to the $24 million spent by the alcohol industry. However, the entrepreneurs of the bursting marijuana industry must continue to advocate in D.C. if they want to reconcile the conflict between state and federal law.

The recreational marijuana business appears to be gaining ground in D.C., as a bill goes before the U.S. Senate that would give these marijuana entrepreneurs access to financial services. This senate bill could be critical for the recreational marijuana industry to continue growing. Resolving the dispute between state and federal laws in order to allow banks to do business with these cannabis companies would alleviate many of the “pot” holes that these companies are currently facing in Washington, Colorado, and other states where recreational marijuana has been legalized. A breakthrough for full legalization of this industry must start with federal

lawmakers,  and the advocates for the industry must continue to prove that the grass is greener on the side of legalized recreational marijuana.



*Dana Sisk is a second year law student at Wake Forest University School of Law. She has a Bachelor of Science in Business Administration, specializing in International Business, with concentrations in Economics and French, from Auburn University. She is interested in pursuing a career in international corporate law upon graduation. 

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