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Bank of America: Legalized Pot Revenues Are OK

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Bank of America (NYSE: BAC  ) already has a jump-start on other institutions that may be looking to win the bid to be Washington state's bank of choice. B of A, the state's banker for the past seven years, may or may not wish to renew its contract. It has, however, indicated a willingness to do what rivals may not: handle state tax and fee revenues generated from the newly legal recreational marijuana industry.

This may seem like a no-brainer, since the business will no longer be illegal. But the fact that the state asked specifically about pot-related revenue indicates officials believe the issue could be problematic. Judging from the history of the legal medical marijuana trade, they could be right.

Legal, but not accepted
Sensibly, Bank of America noted that such monies would be little different than state revenue from medical marijuana, which it has almost certainly handled during its tenure as the state's main bank. But federal laws pertaining to drug laundering have scared many banks and credit card companies away from the budding industry.

This can be seen more clearly when it comes to medical marijuana dispensaries. Even B of A has shied away from handling accounts from those businesses, after being warned by the U.S. Drug Enforcement Administration more than five years ago. Wells Fargo (NYSE: WFC  ) served dispensaries in Colorado until 2011, and in California as recently as last year, but it has also backed away in light of federal laws that still treat cannabis as a controlled substance.

This puts dispensaries in the position of having to conduct business in cash, a dangerous proposition. In early September, Visa (NYSE: V  ) and MasterCard (NYSE: MA  ) put a halt to the use of their credit cards at some California dispensaries, forcing even more transactions to be handled in cash. Though Visa stated that it had "not changed its policy," both companies may have been spooked by a threatened forfeiture action against a large dispensary in Oakland by the U.S. Attorney's Office in San Francisco.

Feds moderating their position
The government may be changing its attitude, however. The Huffington Post reported that a phone call between Attorney General Eric Holder and the governors of Colorado and Washington in late August addressed the issues of relationships between legally operating marijuana businesses and banks, including the concern about safety when entities are forced to deal solely in cash.

At minimum, the Department of Justice is not planning to interfere with the two states' legalization of marijuana and indicated that banks working with legal vendors of cannabis probably won't be charged with any federal drug crimes, including money laundering.

A profitable enterprise
Of course, doing business with a state government is much different than taking large cash deposits from pot growers, but a softening of the government's stance will go a long way toward opening up what promises to be a lucrative legalized marijuana industry. Though Colorado's revenue estimate of $60 million per year through 2017 has been criticized as being too high, the plan to institute taxes totaling 25% on pot sales should certainly help bridge any budget shortfall.

Washington state also plans a 25% tax on the production and sale of recreational marijuana, and the state plans to begin collecting licensing fees in November, and other taxes by next March. Though no one knows for certain, the state estimates receipts could total between $1.4 billion and $3.2 billion over a 10-year period.

As the concept of legalized marijuana gains traction, it will doubtless begin to spread beyond the few states that embrace it today. This means big money for state governments, as well as businesses that deal with the industry, either directly or indirectly. This includes financial institutions, which means that Bank of America may have opened itself up to a whole new profit stream.

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Read/Post Comments (12) | Recommend This Article (6)

Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On September 29, 2013, at 9:31 PM, prginww wrote:

    Nice article, $SKTO and $AEGY are planning to launch Simpleprepay for financing marijuana services, how do you think this decision will impact them?

  • Report this Comment On September 29, 2013, at 9:56 PM, prginww wrote:

    Legal or not it will never go away.

  • Report this Comment On September 29, 2013, at 10:28 PM, prginww wrote:

    Those disgusting, human, parasites over at B of A, would make money off of eating dead children - if they could think of a way.

  • Report this Comment On September 29, 2013, at 10:29 PM, prginww wrote:

    Legal or illegal. Can't really see that it matters either way.

    If one person spends at business x, then y takes a hit unless y can enter the loop. If not, then y will have to be subsidized or become a charity or receive a corporate gift or close the doors. As always, it depends on who owns x and y.

  • Report this Comment On September 29, 2013, at 10:36 PM, prginww wrote:

    Just wondering if B of A and Washington State employees and going to be able to use the products they endorse ? Lets go out and burn one during lunch. It won't impact my work after.

  • Report this Comment On September 29, 2013, at 11:46 PM, prginww wrote:

    Screw B of A

    The cannabis biz should start a Cannabis Credit Union

  • Report this Comment On September 30, 2013, at 2:25 AM, prginww wrote:

    in related news - B of A decides to abide by the law. film at 11.

  • Report this Comment On September 30, 2013, at 2:58 AM, prginww wrote:

    Funny how they will take pot revenue but wont accept any merchants that sells guns or ammo. Seems a little rich to me. Guns and ammo are what makes this country great. plus they are legal in all 50 states. BofA is a horrible bank. They have no clue on how to grow business. They just buy it. No clue on how to organically grow. They cant cross sell to save their rear end. Scandel after scandel they just keep screwing their employees and customers. Leave this bank and let it fail. Ever since Nations bought them they have been horrible. No Class, No Heart and No Soul. Close your accounts and put them anywhere but at BofA.

  • Report this Comment On September 30, 2013, at 6:48 AM, prginww wrote:

    I went in to B of A the other day and I asked for a $10,000 loan, they paid me in pot. I went in to get change for a $20, I got 10 joints. I cashed my pay check and they gave me a whole pound! That's why I do all my banking at B of A.

    Future TV commercial for B of A.

    Believe it.

  • Report this Comment On September 30, 2013, at 8:15 AM, prginww wrote:

    If that state made pot legal, medically and otherwise, then there is no reason why the owners of pot businesses can't have bank accounts in the banks, so there is no reason why the banks should not accept their deposits. We reap what we sow.

  • Report this Comment On September 30, 2013, at 9:02 AM, prginww wrote:

    As B O of A was fined about 500 million just 5 years ago or so, for washing drug money, it only makes sense they go for the legal drug money also.

  • Report this Comment On September 30, 2013, at 10:07 AM, prginww wrote:

    Who care's I would grow it for my self and put it in my own bank ,a jar buried where I know it is, It's not right to tax something that you grow yourself and maintain it what does the government got to do with that, what free money for all of there crook's I don't think so, they don't own the dirt or the air so go figure just more greedy government moron's shrew all of them !

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