Buying legal marijuana with a credit card still banned

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The U.S. Justice Department's decision to turn a blind eye to the enforcement of federal marijuana laws in states that authorize medical or even recreational use of the drug eventually may make it easier to use credit cards for such transactions, but a banking ban on legal pot sellers remains intact for now.

With public policy regarding marijuana rapidly evolving, 20 states and the District of Columbia now allow marijuana to be used for medicinal purposes, and Colorado and the state of Washington have legalized its recreational use.

But nearly all banks and credit card companies, reluctant to run afoul of federal drug and banking laws that remain on the books, refuse to do business with even state-licensed sellers of marijuana. This compels business owners and pot buyers to deal only in cash, which carries its own risks.

Now, the owners of some state-authorized marijuana dispensaries are hoping that the new guidance for federal prosecutors, issued Aug. 29 by U.S. Attorney General Eric Holder, will help remove banking and credit card roadblocks. In essence, Holder and others at the Justice Department said they would not enforce federal drug regulation laws when it comes to marijuana-related transactions in states that authorize and closely regulate cannabis sales.

No ripple effect
Steve DeAngelo, executive director of Harborside Health Center in San Jose and Oakland, which calls itself the nation's largest, not-for-profit medical marijuana dispensary, said he was pleased by Holder's decision -- but only to a point.

"The DOJ announcement is long overdue, but was nevertheless greeted with joy and relief by our patients and staff," he said. "However, our joy is tempered in that the new policy does not specifically apply to current civil enforcement actions.

"For Harborside, that means we are still facing crippling tax assessments, seizure of the properties where we are located, and denial of banking, credit card, security and armored car services," DeAngelo said. "We hope that these and other federal efforts to impede our ability to operate as a legitimate business will also be ended in the near future." 

Well, maybe the not-so-near future.

American Express, for example, told CreditCards.com that it does not anticipate softening its current ban and will not authorize such sales, even in the wake of Holder's announcement.

The reason? Despite the change in federal enforcement policy regarding pot, the federal Controlled Substances Act still outlaws the production and selling of the substance.

"AmEx has made a decision to not allow card acceptance for medical marijuana," said Sanette Chao, a spokeswoman for American Express. "It is our policy to continue to adhere to federal law in such matters."

Credit card transaction ban intact
American Express and the banks through which most of us acquire our credit cards, generally refuse to do business with marijuana marketers or to authorize credit card transactions that involve cannabis.

"As of today, Harborside still has no access to credit card or banking services," DeAngelo said. "However, we are hopeful that our previous service providers will reconsider their decision to suspend service, in light of [the] clarification from the DOJ that those providers will not be subject to federal sanctions."

U.S. Rep. Ed Perlmutter of Colorado, who has filed a bill called the Marijuana Business Access to Banking Act, praised Holder's action but said it made passage of the bill even more important. The bill would authorize banks and credit card companies to accept legally authorized marijuana transactions.

"We need to address the public safety, crime and lost tax revenue associated when these legal and regulated businesses are operating in a cash-only system," he said. "We need to provide financial institutions certainty they can make their own business decisions related to legal, financial transactions without fear of regulatory penalties.

"Currently, under federal banking laws, many legal, regulated legitimate marijuana businesses -- operating legally according to state law -- are prevented from maintaining bank accounts and accessing financial products like any other business, such as accepting credit cards, depositing revenues or writing checks to meet payroll or pay taxes," Perlmutter said. "They are forced to operate as cash-only enterprises, inviting crime such as robbery and tax evasion -- only adding to the burden of setting up a legitimate small business."

Marijuana memorandum
In the Department of Justice's Aug. 29, 2013, memorandum, entitled " Guidance Regarding Marijuana Enforcement ," Deputy Attorney General James M. Cole told federal prosecutors that, in states that have authorized marijuana use for medical or recreational purposes, they should defer to those state laws. No longer should U.S. attorneys in those states file cases against individuals or entities that grow, process, sell, buy or possess relatively small amounts of marijuana, according to the new guidelines.

"The enactment of state laws that endeavor to authorize marijuana production, distribution and possession by establishing a regulatory scheme for these purposes affects [the] traditional joint federal-state approach to narcotics enforcement," Cole told the federal prosecutors.

But for this to work and to endure, state and local officials must closely regulate the transactions, particularly as they relate to public safety, federal officials said. As the guidance was being released to the public, Holder called Colorado Gov. John Hickenlooper and Washington Gov. Jay Inslee to advise them of the move and to discuss his expectations regarding state-enforced regulations.

"The department's guidance in this memorandum rests on its expectation that states and local governments that have enacted laws authorizing marijuana-related conduct will implement strong and effective regulatory and enforcement systems that will address the threat those state laws could pose to public safety, public health and other law enforcement interests," Cole told the prosecutors. 

At the same time, Cole said, the federal government will continue to enforce the Controlled Substances Act in a multitude of other ways, including cases involving the distribution of marijuana to minors, drugged driving, growing marijuana on public lands and the transportation of marijuana from states where it is legal under state law to states where it is not legal.

'Sensible' step
Groups that favor the decriminalization of marijuana expressed support for the new federal policy. 

"This guidance is one more concrete step towards more sensible drug policy in this country," said Ezekiel Edwards, director of the American Civil Liberties Union's Criminal Law Reform Project. "We support the attorney general's decision not to interfere with individuals and entities that are complying with state marijuana laws, thereby respecting states' voter-approved and common-sense approaches to regulating marijuana."

Erik Altieri, communications director for NORML, a nonprofit lobbying group that works to reform marijuana laws, said he expected more states to join the trend toward marijuana legalization, now that the feds have weighed in anew.

"The public has evolved beyond the simplistic, failed policies of cannabis prohibition and are seeking pragmatic, regulatory alternatives," Altieri said." It is encouraging to see that the federal government no longer intends to stand in their way."

Others said that the last thing this nation needs is more drug use.

"We can look forward to more drugged driving accidents, more school dropouts and poorer health outcomes as a new 'big marijuana' industry targeting kids and minorities emerges to fuel the flame," said former U.S. Rep. Patrick Kennedy, co-founder of Project SAM, a bipartisan group that advocates a middle stance between demonizing drug use and legalizing drugs.

Eyes turn to Congress
Still, the trend appears clear, and many are hoping that it will lead to a regularization of individual, low-volume marijuana purchases -- using a credit card, if the buyer so wishes and Congress eventually allows.

"We have provided our service providers with the relevant documents from the DOJ, and are awaiting their decisions on whether or not to restore service," said Harborside's DeAngelo. "Unless and until those providers do restore service, Harborside will be forced to continue operating on an all-cash basis, without the ability to access banking services -- or even armored cars to securely transport the cash.

"We are hopeful the situation will change, but at present the federal government is still trying to tax us out of existence and seize the properties where we are located, in addition to the residual effects on our banking and other support services," he said. 

Industry groups said they would redouble their efforts on behalf of legitimate cannabis operations.

"We are pleased to see the Obama administration will not cause harm to citizens and states by shutting these businesses down, and hope this will lead to an expansion of sensible policies related to marijuana, such as allowing these businesses access to banking, and taxing them at a fair rate," said Aaron Smith, executive director of the National Cannabis Industry Association, a Washington, D.C.-based trade group that represents what it says are the thousands of firms involved in marijuana production and sales.

Dan Riffle, director of federal policy for the Marijuana Policy Project, a Washington, D.C.-based group that lobbies on behalf of reforming marijuana laws, agreed. "The next step is for Congress to act," he said. "We need to fix our nation's broken marijuana laws and not just continue to work around them."

Earlier story: Medical marijuana sellers can't take their 420 money to the bank


The views and opinions expressed herein are the views and opinions of the author and do not necessarily reflect those of The NASDAQ OMX Group, Inc.



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