How Federal Law Inhibits Financing of The Cannabis Industry
Earlier this month, the Justice Department sent the cannabis sector a stiff reminder. Federal law still reigns. It was a four-page memo titled “Why Marijuana Assets May Not Be Administered in Bankruptcy.” It declared the official position on federal bankruptcy protections for state-level marijuana businesses.
“Marijuana continues to be regulated by Congress as a dangerous drug, and as the Supreme Court has recognized, the federal prohibition of marijuana takes precedence over state laws to the contrary,” wrote Clifford J. White III the Director of The Executive Office for U.S. Trustees and his co-author, Trial Attorney John Sheahan. The two officials continued:
The USTP’s response to marijuana-related bankruptcy filings is guided by two straightforward and uncontroversial principles. First, the bankruptcy system may not be used as an instrument in the ongoing commission of a crime and reorganization plans that permit or require continued illegal activity may not be confirmed. Second, bankruptcy trustees and other estate fiduciaries should not be required to administer assets if doing so would cause them to violate federal criminal law.
In other words, business may be booming, but don’t expect the government’s help if things go bust.
Trading In Bundles Of Cash
Cannabis became a suspect crop under the Controlled Substances Act of 1970. Even hemp, with less than .3 percent THC, became a harmless victim of Richard Nixon’s War on Drugs. It was a scorched-earth tactic to scare voters of the day.
Today, legalized cannabis is a $10 billion industry. Arcview Market Research released their Mid-Year Update to The State of Legal Marijuana Markets 5th Edition. It shows that marijuana sales grew 33 percent year-over-year from 2016. The company projects the industry to gross $24.5 billion by 2021. But Tricky Dick’s ghost looms as big finance shuns the cannabis industry.
Because legal or not, the cannabis sector’s narco roots force the industry to trade in cash. The industry has the blessing of the former Justice Department. Still, financial institutions refuse to deal with the cannabis sector.
“Bankers have said that in the current environment, with the enforcement and examiners looking at everything bankers are doing, they aren’t really predisposed to take on anything risky,” said Rob Rowe of the American Bankers Association, in an interview for The San Diego Union-Tribune.
“And banking a marijuana business is risky.”
No Industry Can Operate Without Access To Banks
Stuck dealing with a black market again, legal cannabis is exploring the world of Bitcoin. The industry needs to protect their investments. The banking system is unavailable. Online exchanges such as PayPal are snubbing their noses. Bitcoin is the last best hope for many businesses. The digital currency provides large-scale financial protection like a bank. It is something that no business can function without. Moreover, Bitcoin provides some financial legitimacy as well.
Companies like POSaBIT helps consumers to buy Bitcoins, and, in turn, cannabis. They are seeing financial success finding solutions to the industry’s financial woes.
“There’s no industry — whether it’s the production and sale of cannabis or the production and sale of a cup of coffee — that can operate safely, transparently or effectively without access to banks or other financial institutions and traditional services,” said Jon Baugher, co-founder of POSaBIT, in an interview with The Cannabist. “That’s where we thought we could leverage the use of digital currency.”
Dr. Whatever Your Name Is
This summer, Attorney General Jeff Sessions answered a question about his marijuana policy. He taunted the woman who challenged him, calling her “Dr. Whatever Your Name Is.” Disdain for cannabis and its proponents has long been the former Senator’s stance on the subject.
His comment was a response to a question comparing gun laws to marijuana prohibition. “So I’d like to know, since guns kill more people than marijuana, why lax laws on one and harsh laws on the other?”
Laughing it off as “apples and oranges,” Sessions replied, “Marijuana is not a healthy substance, in my opinion. American Medical Association is crystal clear on that. Do you believe that?”
As it stands a plurality of Americans disagree with Sessions. A CBS News poll from last April showed that 61 percent believe that marijuana should be legal. That number that represents a five-point increase over the previous year.
In October Sessions continued his assault on modernity. In front of the Senate Judiciary Committee, he spoke about Bitcoin.
He told Senator Dianne Feinstein that “Bitcoin is a big problem.”
Can Bitcoin Be The Savior Of The Cannabis Industry?
Bitcoin has a high barrier to entry for the average person. Its relationship to the darknet is a public relations nightmare. Add in the volatility and cannabis is betting its last Bitcoin all on red. Bitcoin alone will not save the industry.
Banks see cannabis as a criminal enterprise. The government views Bitcoin in much the same way.
The situation in Asia is telling. China banned the trade of digital currency. Exchanges now operate offshore in a way that walks the line of legality. Vietnam disavowed Bitcoin as legal tender. The country instituted fines upwards of $9000 for anyone caught using it as payment. And South Korea announced a country-wide clampdown on Bitcoin’s “criminal activity.”
Of course, Asian countries lean more authoritarian. But Americans live in interesting times. Regressive policies under Jeff Sessions leave Bitcoin’s savior status in doubt. Cannabis may be a $10 billion industry, but federal law is still holding it back.
Last March Attorney General Jeff Sessions made his thoughts about cannabis quite clear:
I, as you know, am dubious about marijuana — as states can pass whatever laws they choose. But I’m not sure we’re going to be a better, healthier nation if we have marijuana being sold at every corner grocery store. I just don’t think that’s going to be good for us. We’ll have to work our way through that.
Again, business may be booming, but don’t expect the government’s help if things go bust.