If Colorado lawmakers thought legalizing recreational marijuana was going to mean a big payday for their state, they’re getting a rude awakening. That $40 million in expected tax revenue is going up in smoke because banks and credit card companies are balking at playing along.
Although “Mary Jane” may be perfectly legal to Colorado, it’s still considered verboten by the feds. And therein lies the rub.
Financial institutions are heavily regulated by federal law, and until they get a clear ruling that it’s OK to run pot sales through credit and debit cards, transactions will have to be made strictly in cash, according to Fox News.
And records of cash sales tend to magically disappear, or are at least heavily under-reported.
“So far Colorado has not been able to come up with a solution to the banking problem,” state Sen. David Balmer told Fox. “The vast majority of sales will not be accounted for.”
According to Fox:
Marijuana is considered an illegal drug by the federal government, and laws such as the Bank Secrecy Act carry severe penalties for banks. Last week, U.S. Attorney General Eric Holder said the feds will soon issue regulations opening banking services to state-sanctioned marijuana businesses.
“You don’t want just huge amounts of cash in these places,” Holder said in a speech at the University of Virginia, according to Fox. “They want to be able to use the banking system. And so we will be issuing some regulations I think very soon to deal with that issue.”
In the meantime, the state can say so long to that tax revenue, especially with retailers taking extraordinary measures to avoid paying the state its due. “Some have set up limited liability corporations to create 1 degree of separation to try to open bank accounts,” Fox reported.
Even cash sales are having a difficult time passing the smell test. Literally.
“The large cash deposits smell like marijuana, so some of the businesses are spraying the cash with room freshener or perfume to hide the marijuana smell,” Balmer said. “The banks are even more suspicious when they have a person trying to deposit a large cash deposit that smells like perfume.”
Without accurate financial records, the state’s revenue department can examine a business’ inventor records to get a fuller view of the sales picture.
“There is a new inventory tool that was launched on Jan. 1, 2014, which tracks inventory from seed to sale,” Casey Bauer, spokesman for the state Department of Regulatory Agencies, said.
But just because a business keeps two sets of books for financial records doesn’t mean there aren’t more books being kept in secret — such as inventory records.
“The majority of our marijuana retailers are trying to be honest,” Balmer, said. “But this is the Wild West, and nobody really knows how to be lawful because this still violates federal law.”
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