Florida is among 26 states which have loosened marijuana laws and triggering a surge of marijuana stocks investors have coined the “Dot Bong Era,” according to an Office of Financial Regulation briefing recently provided to legislative staff. The report explores problems the banking industry is facing when federal and state laws are at odds.
More than 60 publicly traded stocks purporting to be marijuana related are available for investors. And, in states that allow marijuana to be sold, the market is expected to be worth $2.5 billion by the end of this year. But marijuana businesses have nowhere to put the money. Most banker associations agree that it is too risky to transact with marijuana related business because compliance with state law is no defense when violating a federal law.
“I’m encouraged by some of the smoke signals coming out of Washington,” said Rep. Matt Gaetz, R-Fort Walton. Gaetz sponsored the medicinal marijuana law approved this spring. “There’s reason to be optimistic that Washington will give deference to the states on enforcing cannabis laws.”
Last Thursday OFR held a routine briefing for House and Senate staff on marijuana, federal law and banking. Such briefings are part of the preparation for a legislative session; bringing staff up to speed on pending issues.
A new Florida law allows growers to cultivate a specific strain of cannabis to extract a medicinal product for a specific set of patients. Voters in November will decide whether to expand the law to allow the use of the marijuana plant itself as medicine. Industry sources value the Florida medicinal marijuana market at $780 million.
OFR’s research findings in other states, such as California and Washington, include banks are reluctant to open accounts for the marijuana industry because banks don’t want to assume the risk of violating federal statutes such as:
- Control Substance Act
- Bank Secrecy Act
- The Patriot Act, and
- Racketeer Influence and Corrupt Organization Act
Marijuana businesses are coping with the conflict between the states and the federal Justice Department by practicing “don’t ask, don’t tell” banking, opening several accounts and keeping deposits below $10,000 and paying bills in cash or money orders.
The Justice Department issued guidelines for banks in states authorizing the sale of marijuana but the recommended procedures provided little comfort to the banking industry.
Among the 7 obligations banks were recommended to perform were an “ongoing monitoring for adverse information” and “suspicious activity” about a marijuana-related customer and routine review of the customer’s state licenses.
At the time the guidelines were released, Frank Keating , president of the American Bankers Association said it fell short of the legal authorization needed for the banking industry to provide its services.
“As it stand, possession or distribution of marijuana violates the federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions,” Keating told CNN.
The OFR briefing is entitled, The Road Ahead. It can be read here or viewed below.