One of several selling points for passing laws to make the recreational sale of marijuana legal in Colorado was the boon jurisdictions expected to reap in sales tax revenue. However, questions about the legality of marijuana sales from a federal standpoint have kept those sales on a cash-only basis to date.
Federal Money Laundering Laws Pose Problem for State Marijuana Sales
Banks and credit card companies have been unable to get a clear answer from federal regulators on whether allowing recreational marijuana shops to accept debit or credit cards or checks as the payment method would mean the institutions behind those transactions are violating federal money laundering laws related to the sale of drugs. Therefore, shops are left with accepting cash as the only means of making recreational marijuana sales.
According to Colorado State Senator David Balmer, cash-only sales leave shops with a lot of leeway as to how much in sales they report for tax purposes.
“So far Colorado has not been able to come up with a solution to the banking problem,” said Balmer. “The vast majority of sales will not be accounted for.”
Although institutions have not received an answer from federal authorities to date, U.S. Attorney General Eric Holder noted they will soon weigh in on the topic.
“You don’t want just huge amounts of cash in these places,” said Holder. “They want to be able to use the banking system. And so we will be issuing some regulations I think very soon to deal with that issue.”
Until federal authorities weigh in on the matter, authorities in Colorado will have to resort to less sophisticated methods than the banking system to identify the amount of recreational marijuana sales. One such method is the smell test.
“The large cash deposits smell like marijuana, so some of the businesses are spraying the cash with room freshener or perfume to hide the marijuana smell,” continued Balmer. “The banks are even more suspicious when they have a person trying to deposit a large cash deposit that smells like perfume.”
However, shop owners looking to keep officials records of their sales off the books should note that the Colorado Department of Revenue is aware of shops licensed to make recreational marijuana sales. The Department of Revenue has the ability to audit those shops, to ensure the amount of sales accounted for in their books match the marijuana inventory delivered to them.
The state has implemented a tracking system to ensure they can account for marijuana grown and the shops to which it is delivered, so they have a volume of marijuana they can compare against sales reported by shops.
“The majority of our marijuana retailers are trying to be honest,” said Balmer. “But this is the Wild West and nobody really knows how to be lawful because this still violates federal law.”
Colorado Recreational Marijuana Industry Faces Issues beyond Accounting for Tax Revenue
The lack of tracking of sales against bank statements or deposit slips is only one issue related to recreational marijuana sales for which the state has found itself ill prepared since sales began at the start of 2014. The state has also found that it does not have enough agents to ensure shops are abiding by regulations related to recreational marijuana sales. In addition, there are concerns that the large amounts of cash shops are handling could make them targets for robbery.
In response to the latter concern, shops are installing safes in which they can store the case and are hiring armed guards.
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Mark has been a contributor to legal web sites related to bankruptcy, tax, and criminal law since 2011. He has an Accounting degree from Texas A&M University.
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