The Marijuana Industry: Financial Law

The marijuana industry is not a new industry. Marijuana has been illegal for a century but according to an article published by abc marijuana is America’s largest cash crop ($35.8bil). This is a larger figure than corn and wheat combined. Recently, some states have decided they want a piece of the pie. Washington state and Colorado have legalized the recreational use of “pot”. The newly created legal industry has caused massive problems. People are going to work stoned. Marijuana is still federally illegal so the DEA could potentially bust a legal dispensary. Once these experimental states have worked out the kinks in the industry we will see more states move towards legalization, attempting to get in on the benefits.

A study done by a Harvard professor Jeffery Miron, estimates that revenue from taxing the plant could add up to almost seven billion dollars annually. Not to mention that the U.S. spends 8 billion a year on prosecuting and handling cases concerning pot. This would mean fifteen billion dollars of extra tax payer dollars that could go to something much more important to citizens.

The Huffington Post released an article about banking and its relationship to the marijuana industry. They state that there is a push in congress to allow businesses in the industry to have “traditional financial services”. Right now these firms cannot use credit card transactions, be publicly traded companies, or issue stocks or bonds etc. Members of congress wish to make all of those available to these firms.

While it sounds like a good idea, The Huffington Post states that even if the marijuana firms had the rights to these financial services, the banks would not do business with them because it is still illegal at the Federal level to posses or distribute marijuana. Until that changes this policy banks will worry about accounts being seized and being charged with money laundering. The Post believes that the states are missing out on valuable revenue because all transactions have to be in cash and collecting taxes from cash businesses is hard, as with no independent record of transactions that would come with credit cards or bank accounts they have an easy time tweaking their income statements.

While the idea of this industry sounds promising, until marijuana firms are treated like legitimate businesses they will not be able to grow. Without insurance, banking, and being able to raise money through public stocks and bonds the industry will be at a stand still.

2 thoughts on “The Marijuana Industry: Financial Law

  1. Pot’s semilicit status changes their cost structure, in particular making “capital” very expensive. Not only does the current conflict between state and Federal statutes mean that bank loans are simply unavailable, but prudent individuals will try not to “bet the farm” lest they become a test case for some zelous ATF agent or federal prosecutor. So they won’t use all of their land, and they won’t want to have much equipment that can be seized. Are there scale economies? Well, if so, farms aren’t yet trying to achieve them.

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