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Eric Holder’s Pot Problem

By the Editors
February 02, 2014 6:00 PM EST
Photo: Getty Images; Illustration by Bloomberg View
Photo: Getty Images; Illustration by Bloomberg View

Twenty states plus the District of Columbia now allow sales of medicinal marijuana, allowing pot prescriptions to treat pretty much any malady, from a headache to a hangnail. Colorado and Washington have legalized the drug for recreational use, too.

Yet federal law still prohibits the possession, use and sale of marijuana for any reason. This dichotomy explains why some banks are reluctant to accept the large amounts of cash that pot purveyors generate -- even if the cash is legal under state law.

To redress this, U.S. Attorney General Eric Holder has promised to issue guidelines to make it easier for marijuana sellers who are operating in accordance with their state laws to use the banking system. Large amounts of cash “just kind of lying around with no place for it to be appropriately deposited,” Holder mused, “is something that would worry me, from a law enforcement perspective.”

Up in Smoke

The fact is, Holder encouraged those bundles of unbanked cash to be assembled in the first place. Last year, perhaps in a nod to opinion polls showing that a majority of Americans favor marijuana legalization, he said the Justice Department wouldn’t seek to overturn the Colorado and Washington measures. Nor, he said, would Washington interfere with the 20 states that allow medicinal marijuana. Instead, federal drug agencies and prosecutors would leave it to local authorities to enforce marijuana laws.

All of which raises the question: When did it become acceptable for the country’s top law-enforcement officer to decide which federal statutes to enforce and which to ignore? Even those who agree with the broader policy of marijuana legalization should be left uneasy by open defiance of the rule of law.

Under the 1970 Controlled Substances Act, marijuana is classified as a Schedule 1 drug, which means it has high potential for abuse, serves no medical purpose and isn’t safe even under a doctor’s supervision. As recently as 2005, the U.S. Supreme Court ruled that, even in states that allow medical marijuana sales, sellers and users can be prosecuted.

Whether or not a law is outmoded, unpopular or overtaken by cultural change, the attorney general doesn’t have the authority to ignore it altogether in half the country. To do so is wrong, and has practical consequences: Holder’s pronouncement caused a surge of cash to flow from the black-market weed business into the regular economy. His guidelines presumably will make it possible for buyers to use credit and debit cards now -- and for banks to accept those transactions -- without fear of reprisal. But some banks won’t go along.

Banks are subject to federal banking laws, including the anti-money-laundering statute, which discourages large deposits of cash by requiring reams of paperwork to document where it came from and where it went. When regulators don’t enforce the rules, lawmakers haul them in, Holder’s blind eye notwithstanding.

What’s more, in states that allow marijuana sales, a whole new pot economy has grown up, complete with cannapreneurs, growers, equipment makers, transporters and even private-equity financiers. The National Cannabis Industry Association estimates marijuana sales will exceed $2 billion in 2014 and $10 billion by 2019. Nevertheless, a future president could wipe the industry out by regarding the federal prohibition as wise and strictly enforcing the law.

If that happens, the marijuana industry and thousands of employees would be put out of work or forced back underground. Banks would again refuse to accept their cash, dispensaries would have to unplug their ATMs, and Visa and MasterCard would refuse to process marijuana transactions. Sales of the drug would continue, of course, but they would again go untaxed and unregulated.

At any rate, guidelines from Justice wouldn’t be enforceable in court, and therefore wouldn’t provide the legal defense bank lawyers must have before advising their clients there is a safe harbor against prosecution.

It’s time Congress recognized reality. With 22 states openly in defiance of the federal statute, lawmakers should decide whether to keep the national ban or turn the question of marijuana decriminalization over to the states. Congress could, for example, withdraw marijuana from the Schedule 1 list, recognize that it has useful medical applications and let the states decide whether and where to allow its use.

What shouldn’t be an option is for the Justice Department to look the other way.

To contact the Bloomberg View editorial board: view@bloomberg.net.

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