Monday , April 30, 2012 - 2:24 PM
SEATTLE -- Conscious Care Cooperative has a solid footing in a growing industry, with three storefronts in Seattle and a loyal customer base. But for much of the last two years, the nonprofit medical-marijuana provider has lacked one business basic: steady access to a bank.
The cooperative has bounced among five financial institutions, and four others rejected the cooperative outright, said CCC's president, Nate Chrysler. In one case, a bank closed the account without notice.
"They froze our funds, and we didn't know it until the checks started bouncing," Chrysler said.
The medical-marijuana industry in Washington state, after two years of wild growth, is struggling to move out of the gray market and into business legitimacy. Already on shaky legal footing because of conflict between state and federal law, dispensaries are now bogged down by troubles with banking and federal taxes.
In some cases, dispensaries -- unable to find a willing bank -- are operating solely with cash. That complicates everything from payroll to tax preparation while heightening the risk of robbery.
Some dispensary owners say they've resorted to euphemisms -- such as a "holistic healing center" -- when trying to open a bank account.
That's in part because federal authorities have warned banks that handling receipts from marijuana sales remains illegal under federal law and could violate money-laundering laws.
The conflict is not isolated to Washington, one of 16 states -- plus the District of Columbia -- to allow therapeutic use of marijuana for certain patients.
Aaron Smith, executive director of the Washington, D.C.-based National Cannabis Industry Association, estimates that half of dispensaries nationwide lack a bank account, which he blames on pressure from federal banking regulators.
"It is a widespread problem that threatens the entire industry," he said.
Advocacy groups are lobbying Congress for changes to banking law and the IRS code that acknowledge the legitimacy of an industry estimated at $1.7 billion.
Despite President Barack Obama's indication during his campaign that he would be more laissez-faire, his administration has been more aggressive in targeting the booming industry than previous administrations. In an interview with Rolling Stone published last week, Obama reiterated that his administration would not prosecute patients, but gave no assurance to businesses.
"I never made a commitment that somehow we were going to give carte blanche to large-scale producers and operators of marijuana -- and the reason is because it's against federal law," Obama said. "I can't nullify congressional law."
Washington state voters approved medical marijuana in 1998, but it has developed into an industry -- from storefront dispensaries to mobile THC testing labs to cannabis-infused sodas -- only in recent years.
Industry advocates failed in the past two years in Olympia to get clear protection for dispensaries.
Instead, most dispensaries operate under a broad -- some prosecutors would say mistaken -- interpretation of state law that allows groups of up to 10 patients to grow 45 plants in a "collective garden," and to share the costs. Dispensaries run those gardens, and patients join just long enough to obtain marijuana.
The state does not license or regulate dispensaries -- leaving that to cities -- but does want them to pay taxes. The Department of Revenue collected $755,764 in sales and business taxes in 2011 from 50 dispensaries.
With an estimated 135 or more dispensaries statewide, many medical-marijuana providers aren't paying. Seattle, the state's marijuana mothership, has issued 79 business licenses to medical-marijuana organizations, according to a Seattle Times analysis of city data.
The state has begun taking a closer look, auditing two dispensaries, said Revenue spokesman Mike Gowrylow.
Federal bank regulations do not specifically prohibit doing business with the medical-marijuana industry, and Attorney General Eric Holder told Congress in December that the Justice Department would not make it a priority to go after bankers who did.
But in June, Holder deputy James Cole issued a memo warning that "those who engage in transactions involving the proceeds" of marijuana sales "may be in violation of federal money-laundering statutes and other financial laws."
The Cole memo sent a chill through the banking industry, said Sam Kamin, a University of Denver law professor who has written about marijuana regulation. "It's a great threat because it allows the federal government to do what it wants without using scarce resources."
Months after the Cole memo, Colorado Springs State Bank, which marketed itself to Colorado's huge medical-marijuana industry, closed an estimated 300 accounts.
Lance Ott, executive director of Guardian Data Systems, a Vancouver-based financial consulting firm, said he knows of no financial institution in Washington that openly banks the industry. Most of the major credit-card processors, as well as PayPal, also refuse medical-marijuana accounts.
"That doesn't mean there aren't people who don't have a friend willing to work with them. A lot of it is behind the scenes," said Ott. "The banks need to show liquidity on the balance sheets."
Contact Jonathan Martin: 206-464-2605 or jmartinseattletimes.com.
(Distributed by Scripps Howard News Service, www.scrippsnews.com)
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