Is Marijuana Becoming a Legitimate Business in the United States?

On July 18, the House of Representatives voted in favor of an amendment designed to make it easier for banks to do business with marijuana-related businesses.

Flickr/ Fort Greene Focus

While the actual effect of the amendment is likely to be minimal, as it pretty much just allows the U.S. Treasury to continue implementing its existing guidelines, it shows a clear trend toward a loosening of anti-marijuana sentiment in the government. So, what exactly is the significance of this latest development, and who will be the big winners?

What the "Heck amendment" does
Basically, the amendment prevents the SEC and the U.S. Treasury from penalizing banks for lending money and engaging in other banking activities with marijuana-based businesses in states where it is legalized.

The bill rejects an attempt to block recent guidance issued by the Treasury telling banks how to report on their marijuana-related business without violating federal money-laundering laws.

Up until now, banks have been very reluctant to deal with marijuana businesses due to unclear guidelines. Since dealing with marijuana is still illegal under federal law, banks could technically be accused of money-laundering charges if they deal with marijuana businesses.

As a result, most marijuana operations have been a cash-only business, which has forced them to keep large stockpiles of cash on hand, sometimes tens of thousands of dollars. This has made the businesses a target for robberies and other crimes that are facilitated by the transport of large amounts of cash.

Why it's so significant
Not only is the Heck amendment a huge step toward legitimacy for marijuana businesses in states where it has been legalized, but it's yet another big step in the right direction toward national decriminalization of marijuana.

Congress also recently voted to defund the DEA's ability to interfere with marijuana businesses and customers who are in compliance with state law. And, last August the Justice Department said it would rely on states for the most part to enforce and regulate the use and sale of marijuana in states where it is legal.

Essentially, legal victories like these are gradually turning marijuana legalization (or criminalization) into a state issue, and not a federal one. Even conservatives are beginning to come around, with 46 (mostly moderate and libertarian-leaning) republicans voting in favor of the amendment.

This isn't to say these republicans are in favor of legalization in their own states...we're certainly not there yet. However, it seems like they are beginning to realize republicans from other states have no business telling states like Colorado and Washington what their marijuana policies should be.

Two big winners
There are two big winners here. First, the marijuana businesses themselves will benefit tremendously from having access to financial-system resources all other legitimate businesses are allowed to use. Having access to banking won't necessarily increase business, but it will certainly make the businesses themselves safer to operate.

The other big winner could be local banks. Banks, are still very hesitant to get involved with the marijuana business for fear of facing penalties, even after the new Treasury guidelines. Banks have pointed out that even with the Treasury's guidelines, marijuana is still illegal on a Federal level, and banks could potentially face Federal charges. And it's definitely true that the guidelines do not supersede federal law, as the president of the Washington Bankers Association recently pointed out.

Still, there is some interest among smaller and community banks, and whoever decides to be the first to stomach the risk and bank with marijuana businesses could get boatloads of new business. The Financial Crimes Enforcement Network indicated that when the Treasury guidelines were made, there were indeed some banks interested in accepting marijuana business.

Whatever happens, we're headed in the right direction
Even with the new amendment, it could take the banks a little while to really feel comfortable getting involved in the marijuana business.

However, the real significance here is the changing attitudes on Capitol Hill toward marijuana policy. It's only a matter of time before marijuana regulation becomes an entirely state-controlled issue, and the passage of the recent amendment by a republican-controlled house tells us all we need to know about the direction things are heading.

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Comments from our Foolish Readers

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  • Report this Comment On July 26, 2014, at 11:55 AM, TKK1959 wrote:

    It might be making a legitimate business.....but I still say it isn't healthy for our citizens nor our youth. Only a pothead would argue the point.

  • Report this Comment On July 26, 2014, at 1:49 PM, TexasBob86 wrote:

    I'm all for decriminalizing and legitimizing the marijuana business. However, it is my sincerest hope that it will develop as a cottage industry and that big retail and big pharma will stay out of it. They seem to ruin everything they touch.

  • Report this Comment On July 26, 2014, at 2:32 PM, Merlin1961 wrote:

    TKK1959... Alcohol is definitely not healthy... so is fried foods, too much sugar, and even sunbathing... the list could go on. If pot was legalized and regulated it would diminish it in the black market... making it harder for our youth to acquire....Dealers do not ask for ID.... drug cartels would lose millions of dollars to fund their activities where that money would flow into our economy and the industry creates more jobs.... The "Idea" that pot is a gateway drug is only because many pot dealers sell more than just pot! They push their other DRUGS on their customers even giving them free "Tastes" to try and get them started and hooked. In a pot dispensary, buyers are not exposed to these other drugs and no one is using "PEER PRESSURE" to convince pot smokers to try heavier drugs like coke. 3 out of 4 people who try cocaine 1 time become addicted. The dealers know this and will even give a "TASTE" as they call it to someone who has never tried it knowing that the odds are in their favor for future sales as it is so addictive. Crack dealers know that if they can get someone who has NEVER done any drugs in their life to take just 1 hit... just 1... the odds are that that person will spend every dollar they have in their pocket before they leave. making pot legal has many benefits in so many different ways. Now I do believe that if legal that the use of it should be confined to one's own home or private bar/club type setting. I believe it should not be used while driving, at work, parks, walking down street, ect.ect.

  • Report this Comment On July 26, 2014, at 5:28 PM, phillipzx3 wrote:

    "It might be making a legitimate business.....but I still say it isn't healthy for our citizens nor our youth. Only a pothead would argue the point."

    But alcohol, tobacco, big pharma drugs and fatty, empty callorie foods are all ok, right?

    If you were truly worried about kids, you'd be speaking up against those as strongly as you're "pot head" rant.

  • Report this Comment On July 26, 2014, at 5:31 PM, phillipzx3 wrote:

    No editing function, so excuse me. "Calorie."

  • Report this Comment On July 26, 2014, at 8:06 PM, TruthBe wrote:

    TKK1959, I'd argue your point and I'm definitely not a "pothead." Our citizens and youth have always been able to get it if they wanted it. All making it a legitimate and legal business will do is take money from the gangs and cartels. Oh, and make it so those that want to can invest in MJ businesses.

  • Report this Comment On July 26, 2014, at 9:20 PM, duh34 wrote:

    Already was ..

  • Report this Comment On July 26, 2014, at 10:03 PM, Vallinor wrote:

    I don't think the State deserves to get cash from our crops due to 75 years of lies and millions of devastated families.

    After two years of planning, Anslinger brought his plan to Congress — complete with a scrapbook full of sensational Hearst editorials, stories of ax murderers who had supposedly smoked marijuana, and racial slurs.

    It was a remarkably short set of hearings.

    The one fly in Anslinger’s ointment was the appearance by Dr. William C. Woodward, Legislative Council of the American Medical Association.

    Woodward started by slamming Harry Anslinger and the Bureau of Narcotics for distorting earlier AMA statements that had nothing to do with marijuana and making them appear to be AMA endorsement for Anslinger’s view.

    He also reproached the legislature and the Bureau for using the term marijuana in the legislation and not publicizing it as a bill about cannabis or hemp. At this point, marijuana (or marihuana) was a sensationalist word used to refer to Mexicans smoking a drug and had not been connected in most people’s minds to the existing cannabis/hemp plant. Thus, many who had legitimate reasons to oppose the bill weren’t even aware of it.

    Woodward went on to state that the AMA was opposed to the legislation and further questioned the approach of the hearings, coming close to outright accusation of misconduct by Anslinger and the committee.

    On the floor of the house, the entire discussion was:

    Member from upstate New York: “Mr. Speaker, what is this bill about?”

    Speaker Rayburn: “I don’t know. It has something to do with a thing called marihuana. I think it’s a narcotic of some kind.”

    “Mr. Speaker, does the American Medical Association support this bill?”

    Member on the committee jumps up and says: “Their Doctor Wentworth came down here. They support this bill 100 percent.”

    And on the basis of that lie, on August 2, 1937, marijuana became illegal at the federal level

    How can a law based on a documented lie still be a law?

  • Report this Comment On July 27, 2014, at 4:00 AM, PassthePuck wrote:

    Medical Marjuana, Inc. ticker: MJNA last year solved this problem of banking and transport of money by setting up an amored car service that picks up cash and deposit that money in a undisclosed location. Then all the pot companies got together to help each other with providing loans. Plus this armored car service transport cash to dispensaies in the form of products. You can't transport pot like must product. This company is called MPS International. This service can grow state to state as each state passes laws allowing the sale of Marijuna.

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Matthew Frankel

Matt brought his love of teaching and investing to the Fool in order to help people invest better, after several years as a math teacher. Matt specializes in writing about the best opportunities in bank stocks, real estate, and personal finance, but loves any investment at the right price. Follow me on Twitter to keep up with all of the best financial coverage!

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