Stars align in favor of medical marijuana sales

The federal government recently signaled a truce in its campaign against medical marijuana dispensaries. The move begins to put to rest legal ambiguities that had resulted in many banks refusing to open demand deposit accounts and merchant accounts for state-sanctioned dispensaries.

In a statement released in August 2013, the U.S. Department of Justice said it will no longer pursue prosecutions of marijuana dispensaries that operate in accordance with state laws and regulations.

The decision, in the form of a memorandum to federal prosecutors, came in the lead-up to a U.S. Senate hearing in which department officials stated they are working with the U.S. Department of the Treasury on a plan that allows marijuana dispensaries to maintain bank accounts. Senate Judiciary Committee Chairman Sen. Patrick Leahy, D-Vt., called the hearing to examine conflicts between state and federal marijuana laws.

To date, 21 states have legalized marijuana for medical purposes; 16 of those also have decriminalized possession of small amounts of pot. Washington and Colorado were the latest to join the group, having legalized the possession of small amounts of marijuana and set in motion processes for state regulations that address how pot is produced and distributed in those states.

"These new laws are just the latest examples of the growing tension between federal and state marijuana laws, and they underscore the persistent uncertainty about how such conflicts will be resolved," Sen. Leahy said at the start of the Sept. 10 hearing.

Backing away from prosecutions

Two years ago, the DOJ forced shut downs of several marijuana dispensaries in California on grounds that they violated federal law. That had a chilling effect on relationships between dispensaries and financial services companies. Banks have been refusing to open accounts for marijuana dispensaries, as have merchant services providers, fearing the federal government would prosecute them for working with criminal enterprises. As a result, many dispensaries operate as cash-only businesses, even going so far as to pay taxes and state licensing fees in cash.

In late August, the DOJ issued a memo instructing federal prosecutors to de-prioritize enforcement of marijuana laws against state-licensed dispensaries, provided they are in compliance with state regulations. And in response to questions posed by Sen. Leahy, Deputy U.S. Attorney General James Cole said his office is working with Treasury officials on the banking conundrum, although he didn't elaborate.

In related news, Rep. Earl Blumenauer, D-Ore., introduced legislation in Congress that would put marijuana dispensaries on an equal footing with other businesses under the federal tax code. "Small, legal marijuana businesses are being victimized by the tax code," Blumenauer said during a Sept. 12 press conference heralding legislation that would accord dispensaries the same tax advantages as other businesses. These include, but are not limited to, deducting business expenses and depreciating American-made irrigation equipment.

"Without the technical amendment needed to allow these businesses to be treated equally under tax law, states and municipalities that are currently embracing the emerging regulated cannabis industry will never be able to realize its full economic potential," Blumenauer said.

The legislation H.R. 2240, the Small Business Tax Equity Act, has the full backing of the Americans for Tax Reform. Grover Norquist, prominent Republican Libertarian and President of Americans for Tax Reform, joined Blumenauer at the Sept. 12 press conference. Norquist also mentioned a white paper titled Legal Cannibis Dispensary Taxation: A Texbook Case of Picking Winners and Losers Through the Tax Code, which explains the group's position.

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