On February 24, 2016, I was fortunate to speak on a panel with Rick Garza, Director of the Washington State Liquor and Cannabis Board on the topic of Pot and Policy. My presentation focused on the hurdles faced by marijuana licensees in Washington State, including federal enforcement issues.
Although it is legal for licensed marijuana businesses to grow, process and sell marijuana in the State of Washington, the possession and sale of marijuana remains illegal under federal law. Federal illegality presents many problems for Washington’s legal marijuana industry.
The biggest dilemma that marijuana businesses face because of federal illegality is the inability to open a bank account and obtain a commercial business loan. The legal marijuana market in Washington State is primarily an all cash business. To date, only four credit unions in the state are accepting marijuana business accounts.
Additionally, there are virtually no commercial banks willing to lend money to marijuana businesses. Consequently, marijuana businesses must seek needed capital from private sources – which generally mean friends and family. Currently marijuana businesses can only accept financing from in state lenders. This may change, however, if the Washington State Liquor and Cannabis Board enacts a proposed rule change to allow out of state financing.
In addition to banking and lending issues, marijuana businesses are restricted from taking federal income tax deductions and exemptions due to marijuana’s classification as a Schedule I drug pursuant to the Federal Controlled Substances Act. Consequently marijuana businesses are paying a much higher tax rate than most other businesses.
Other issues raised by federal illegality include the inability to claim bankruptcy protection, the inability to register federal trademarks and patents, and the enforcement of contract claims in federal and state courts. Until marijuana is declassified as a Schedule I drug, these problems will remain.
For more on federal enforcement issues as well as other hurdles faced by marijuana licensees, please see the video recording of February 24th’s presentation at the Bellingham City Club- Pot and Public Policy.
For more information on the regulation of marijuana businesses, please contact Heather Wolf.