In these early days of marijuana legalization, the million-dollar question is what to do with a million dollars.
Cash is bulky, dangerous, and inconvenient for paying taxes, but you have to do something with it. And cannabis entrepreneurs can't just take it to Bank of America and make a deposit like every other kind of business can, for a lot of reasons: (1) Licensed cannabis businesses are legal at the state level but not at the federal level; (2) banks and credit unions are insured and policed by conservative federal agencies (the FDIC and NCUA, respectively) who have sent faint signals that they're maybe-sorta-okay with banks and credit unions doing business with the marijuana industry, but nobody's really sure yet; (3) no bank or credit union wants to lose its charter, because charters are extremely arduous and time-consuming to get approved in the first place; and (4) credit-card processors are also reluctant to get involved in cannabis businesses, which is a further disincentive for banks and credit unions that don't want to deal with the sheer volume and security risk associated with truckloads of currency.
As a result, cannabis businesses have found themselves facing the same problem old-fashioned drug smugglers have always had to wrestle with—what to do with all that cash. But in recent months, at least two credit unions (Salal Credit Union and Numerica Credit Union) have stuck their necks out by beginning to accept cannabis accounts on a very limited basis, employees of those credit unions say.
"We can't even handle all the phone calls we're getting right now," said Bob Schweigert, chief lending officer at Salal, which has approximately 10 cannabis accounts at the moment and hopes to have 25 by the end of the year. The credit union set strict limits on how much marijuana money it would allow into its system because the market is so economically volatile and vulnerable to any shifts in attitude at the US Department of Justice. Memos from Deputy Attorney General James Cole and the US Treasury's Financial Crimes Enforcement Network (FinCEN) have indicated that the federal government is more concerned with stopping cartels, sales to minors, drug-related gun violence, and "drugged driving" than sane, legal-at-the-state-level marijuana enterprises. Still, Schweigert said, all that could change. "If it gets overturned, what's our risk?" he said. "What's our exit strategy?"
Kelli Hawkins, a spokesperson for the other marijuana-friendly credit union, Numerica, wouldn't disclose how many cannabis-related accounts it had opened, but said it would limit cannabis-related deposits to $5 million per customer and 5 percent of the institution's total deposits. Neither credit union is accepting medical marijuana accounts, since that industry is not regulated and was not affected by the passage of I-502.
Why are small credit unions leading the way where big banks fear to tread? "I don't know," Schweigert said. "Maybe the banking regulators haven't been as willing to say yes. And credit unions are here to help people and local businesses—those are our roots and a lot of the reason we decided to do this." Salal officials were initially concerned about how its members would react, but Schweigert said they've received very few complaints. "Some people have actually said they're switching their accounts to us because we've started doing this," he said. "I said from the beginning that we have more reputation risk by not opening accounts than opening them—because the people voted it in."
But there are many more marijuana businesses in Washington than two credit unions are equipped to handle. Many growers, processors, and retail shop owners say they're handling their money the old-fashioned way—by hiding cash in a variety of vaults and safe houses or maintaining multiple accounts in mainstream banks that either don't know where the money comes from or are willing to look the other way.
"I figured out how to work the banks," one marijuana retailer explained over the phone between bong hits. (I'm not making that up.) "I can't tell you my secrets, but you don't want to set off any red flags. You have to be smart about it—you don't want a website linked to the business you're trying to get bank accounts for. You don't want to deposit too much at once. You have to keep a low profile. It's a daily activity if you're a 502 business to make your deposits without blowing up the bank." Paying his taxes, he said, involves multiple deposits over many days before he can write a check to the IRS.
Another marijuana retailer—who's transitioning his business from the medical market to the recreational market—said he'd been dropped by between five and seven banks over the years. The first breakup came in the spring of 2011 when a bank employee asked why his money "smelled so funny." He let it slip that he ran a medical marijuana business and lost his account within 24 hours. The banks and credit unions that have dropped him are always apologetic and polite, he said, but firm.
"Of course they are—who wants to lose their charter?" said Howard Choder, a longtime IRS agent who now works "on the other side," as he put it, helping people navigate the IRS. He predicts credit unions and banks will continue to trickle into the market, that states will hustle to keep business going, and that the discrepancies between state and federal law will have to be solved by someone taking a case to the Supreme Court. "Gay marriage took a while to go through the courts, but this is on a fast track," he said, largely because of the potential revenue involved. "In five years, it'll be legalized. The states are broke, they want additional tax revenue, and the social mores—well, who cares anymore? Just some right-wing nutcases who probably smoke it anyway."
The real problem, Choder said, is the federal tax situation. A small business like a coffee shop can deduct the "cost of goods sold" (the coffee, the cups, the employees' wages) as well as administrative costs (rent, advertising, bookkeepers). The courts, he said, have declared that federally outlawed drug enterprises can deduct cost of goods sold, but not administrative costs—and that's going to kill marijuana businesses that aren't savvy enough to have figured that out yet.* "If you sell a cookie today, for federal purposes you don't have to pay taxes for it for a year," he said. "People doing business now aren't seeing the implications."
Compound that with trying to pay taxes without secure banking, Choder said, and "it's going to be a scary tax season next year." The Washington State Department of Revenue is making its own contingency plans and has requested $1.3 million for enhanced security to prepare for the increase in taxes it expects to receive in cash.
On the ground, the relationship between cannabis businesses and mainstream banks seems to be moving forward slowly and carefully. "Bill," a grower in Southern Washington, said nobody he knows deals in cash anymore and that the legal marijuana industry would soon be one of the most transparent in the country. "Every time I move a plant from one building to another, it gets reported to the state," he said. "The accountability in this process is incredible, and the money is no different... I've never seen an industry—and I've worked in nuclear power and microelectronics—with this level of scrutiny."
All of his business contacts, he said, have normal bank accounts. "I had an existing relationship with a regional bank," he said, and they were happy to let him keep his account for his new cannabis venture. "They said, 'We don't care—just don't do anything illegal.'"
* The part of the tax code explaining what federal drug outlaws can and can't deduct is 280E. That clause came about in the 1980s, when a convicted cocaine, marijuana, and amphetamine dealer realized he owed a substantial sum to the IRS in back taxes and set about deducting business costs such as yachts, guns, travel expenses, and bribes to foreign officials. The gambit worked—there was no federal law on the books preventing it—but Congress quickly closed the loophole. 
