Update on marijuana regulation – #18

Image courtesy of DollarPhotoClub.com
Image courtesy of DollarPhotoClub.com

I haven’t seen much news on the legalized marijuana industry lately. Maybe I’ve not been paying enough attention.

For a reminder, the reason I’m talking about this issue is my hypothesis that overregulation will severely constrain this brand new industry. This is a natural experiment on how regulation affects an industry.

6/22 – Bloomberg Business – This Survey Says That Marijuana Prices Are Crashing in Colorado – Article cites a survey by a brokerage firm providing the following estimates of recreational marijuana prices at retail:

  • 1/8 ounce:        full ounce:        timing:
  • $50-$70           $300-$400       a year ago (exact date unknown)
  • $30-$45           $250-$300       currently (May or June)

In addition, there will be a cut in the sales tax. The survey cited is not visible online at the brokerage firm’s website. The comment in the Blomberg article is confusing.

It indicates the 10% sales tax will be repealed on September 16, but that may be for only one day, which doesn’t make sense. The next sentence in the article says the 10% sales tax will be cut to 8% permanently in 2007.

The reason, as cited in the quotation? To battle the black market.

The report from the brokerage firm says stores statewide will gross about $480 million in 2015, which would be a 50% increase over 2014. Sales per customer reportedly are down substantially.

7/30 – NY Times DealBook – Banking for Pot Industry Hits a Roadblock – A major obstacle for state-legal marijuana businesses is not being allowed to operate within the banking system. Under federal banking rules, any money from marijuana businesses deposited into a bank or credit union is money laundering. Remember that receiving deposits of $10,000 in currency or more requires banks to file a Suspicious Activity Report.

Imagine trying to run a business without access to banking. No checks. No credit cards. Think about how to handle payroll, tax deposits, sales tax deposits, vendor payments, equipment purchases, utility payments, getting approval for equipment financing or building purchases, and paying the producers.

Check out the accompanying video for the extreme levels needed to provide security for an all-cash industry. Even the ancillary service providers (such as an armed security company) are getting kicked out of the banking system.

One illustration of free enterprise is the rapidly expanding businesses providing armed security for the retailers. Check out the accompanying video for visuals of what heavily armed private security looks like. Unless you have a decent-sized squad with military level training, you really don’t want to mess with one of their money transports.

A group, funded by marijuana entrepreneurs, opened a state-chartered credit union focused on serving the state-legal marijuana industry. They received state permissions. Federal insurance through NCUA was denied, but private insurance is possible. Such a credit union could even run without deposit insurance.

Biggest obstacle is the Fed just denied the new credit union a ‘master account’ which would have given the credit union access to the banking system. Without that permission, the credit union can’t process credit cards, put checks into the clearing system, or send wires.

This specific issue is a ripple effect of the state-legal/federal-illegal issue. It is isn’t really an issue of over-regulating the industry which is what I’m focusing on in this series. It is still worth discussing the transition issues as a fledgling industry grows.

Leave a Reply

Your email address will not be published. Required fields are marked *