Pot Businesses Shut Out of Banks Are Investing in Pricey Bongs

By Victoria Kim 03/02/15

Legal marijuana retailers are still facing the challenge of being an all-cash business.

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Some marijuana entrepreneurs are investing in glass pipes, bongs, and rigs with nowhere to stash their fast accumulating cash thanks to banks continuing to refuse to do business.

Banks are afraid to deal with pot businesses even in states where marijuana is recreationally or medically legal, because all banks are licensed and overseen by federal institutions and do not want to risk violating federal anti-money laundering laws, as marijuana is still illegal under federal law.

Without the services of legitimate financial institutions, it’s difficult for pot businesses to grow. “It’s kind of [like] stuffing cash under your mattress and trying to exist as a legitimate business outside of the financial system,” said Peter Conti-Brown, an academic fellow and banking expert at Stanford Law School.

New financial institutions are coming into existence precisely for this purpose, Conti-Brown said, but they are unstable at best.

In the struggle to “legitimize” their profits, some marijuana dealers launder their money through legitimate small businesses. Others invest in custom glass pipes, which can be worth hundreds of thousands of dollars.

“You can use [glass] to launder money,” one California businessman who deals in marijuana concentrates told BuzzFeed. “You go to a gallery, see something for thirty thousand bucks, make a deal, and then sell it off and just make a stipulation that whoever pays you pays with a check. I could trade half of these pipes within a day or two, if I wanted to.”

Most of these are purchased off the books, between friends and connoisseurs at trade shows or online. Then the pipe, bought with drug money, can be resold with all of the appropriate receipts, paperwork, and taxes. Now, the money is clean.

“A lot of people like to buy up glass companies because it’s really hard for the government to see, to understand it,” said Phil Martin, who helps run Moxie 710, an L.A.-based seeds and extracts company. “They don’t understand that you can buy glass really cheap and then sell it for a high price…so it’s a lot easier for people to put their money in there, launder it, and get it legally back out of the glass company. And that happens a lot.”

Early last year, Attorney General Eric Holder issued a memorandum to prosecutors intending to signal that it is possible for banks to provide financial services to state-licensed marijuana businesses and still be in compliance with federal anti-money laundering laws. However, the memo fell short of the explicit legal authorization that banking industry officials and pot businesses are pushing to government to provide.

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Victoria is interested in anything that has to do with how mind-altering substances impact society. Find Victoria on LinkedIn or Tumblr