In a free and just society, laws should be clearly designed and easy to follow so that honest people know the ground rules and can live their lives without fear of running afoul of the government. In fact, it’s the mark of a tyrannical society when laws are contradictory and murky, thus leaving people unable to easily comply despite their best intentions.
Now consider the plight of marijuana businesses in the 33 states and the District of Columbia where either medical marijuana or the adult use of recreational marijuana is legal. State laws, either through voter initiative or legislative action, have allowed these businesses to exist, but federal restrictions force them to operate in a gray area.
The most maddening example involves banking regulations. Marijuana businesses are required to pay excise taxes, but have largely been denied access to banking, insurance and financial services that would facilitate those payments. Fortunately, a measure that will help these businesses use basic financial products passed the House in late September but faces tougher going in the Senate, where a committee vote is expected this fall.
Sponsored by two Colorado lawmakers, Rep. Ed Perlmutter (D) and Sen. Cory Gardner (R), the federal Secure and Fair Enforcement (SAFE) Banking Act signals a bipartisan recognition in Congress of this frustrating problem by protecting banks and credit unions from federal sanctions for providing financial services to legal cannabis businesses.
This effort is long overdue. One need not even like the idea of marijuana legalization to realize the perverse consequences of a banking prohibition. Because the federal government considers the cultivation, sale, transportation and possession of marijuana to be a crime, it threatens banks, credit unions, credit card companies and payroll companies with huge liabilities, the loss of federal deposit insurance and even prosecution if they do business with cannabis businesses.
As a result, most of these cannabis companies are stuck in a cash market, which leaves them vulnerable to crime and allows dubious players to flourish. That also provides a Catch-22 situation. In California, for instance, medical marijuana has been legal since 1996, yet 23 years later it’s still unclear how those businesses are supposed to pay their tax bill. There are stories of marijuana business owners showing up at the state’s tax agency offices with trash bags filled with cash, even though the agency generally doesn’t allow cash payments.
Similar stories occur in other states with legal cannabis sales. Sure, governments tend to be maddeningly bureaucratic and inefficient in general, but you’d think they could at least come up with a simple way to collect their own tax revenues. It’s also difficult for state regulators to audit cash businesses, so that’s another incentive for lawmakers develop a reasonable method to help honest players play by the rules.
The situation is equally bizarre when cannabis companies try to pay federal taxes. “Although cash payments are not explicitly required by the IRS, an estimated 70 percent of all legal cannabis businesses are unbanked,” according to a recent article in Quartz. It quotes a Colorado-based accountant who notes that “99% of banks don’t want to mess with them (because) there’s a lot of internal compliance if you’re going to serve the cannabis industry.”
State officials have long been aware of the problem. California officials, including Republicans opposed to legalization, have called on the federal government to legalize bank accounts for marijuana businesses. Thirty-nine state attorney generals recently asked Congress to lift the virtual ban on banking for the marijuana industry.
The SAFE Banking Act reaffirms the concept of federalism—that states can set their own policies on many matters, including marijuana—and promotes some basic American ideas of liberty. We all understand the need for taxes and regulation, but those regulations should be predictable, logical and designed to promote, rather than frustrate, compliance. They should provide a legal framework so that good actors don’t live in fear of government reprisal.
This column was first published in the Boulder (Colo.) Daily Camera.
Founded in 1968, Reason is the magazine of free minds and free markets. We produce hard-hitting independent journalism on civil liberties, politics, technology, culture, policy, and commerce. Reason exists outside of the left/right echo chamber. Our goal is to deliver fresh, unbiased information and insights to our readers, viewers, and listeners every day. Visit https://reason.com
This post has been republished with implied permission from a publicly-available RSS feed found on Reason. The views expressed by the original author(s) do not necessarily reflect the opinions or views of The Libertarian Hub, its owners or administrators. Any images included in the original article belong to and are the sole responsibility of the original author/website. The Libertarian Hub makes no claims of ownership of any imported photos/images and shall not be held liable for any unintended copyright infringement. Submit a DCMA takedown request.