By Michael Davis

Pat Pericak, a balding, middle-aged businessman, looks like a fuel marketer or an executive for a cleaning supply company.  Because of his looks, no one would guess that he is one of the industry leaders in the legal sale of marijuana in Colorado.

Pericak was a panelist for the “CannaBusiness” session at the 2014 Smoker Friendly Conference in Broomfield, Colorado, last Friday.  “We’re legal businesses paying wages, taxes, licenses, and permits like any other businesses,” explained Pericak. “We are not drug dealers or freaks on the corner.  We are business people with employees and investors.”

Truth be told, the cannabis business in Colorado really is made up of serious businesspeople, investors, medical professionals and others who believe in the therapeutic value of cannabis.  “I could have made more money and had less aggravation if I invested my money in the stock market,” added Pericak. Panelist and medicinal marijuana grower and retailer David Threlfall concurred. 

Threlfall believes the benefits of cannabis are limitless.  “Folks with MS, epilepsy, cancer, rheumatoid arthritis and other diseases benefit from use of cannabis.”  He and others help these folks; in fact, it’s the main reason they got involved in the cannabis business in the first place.  (Note: While fighting the legalization of cannabis, the U.S. government issued Patent No. 6,630,507 for medical marijuana to itself in 2005.)

Hurdles to Overcome
Yet while business is brisk, plenty of issues still lie ahead for legal producers and distributors. The issues are primarily federal and local (citizens not wanting sales in their towns or owners and employers having to jump through background check hoops).  Besides the usual groups of detractors, Big Pharma also objects to the legalization and sale of marijuana and supports the continuation of marijuana as a Schedule I drug, along with heroin, LSD, MDMA (ecstasy) and bath salts.  Schedule I drugs are listed as such because:

• The drug or other substance has a high potential for abuse.
• The drug or other substance has no currently accepted medical treatment use in the U.S.
• There is a lack of accepted safety for use of the drug or substance under medical supervision.

In comparison, cocaine (including crack), oxycodone and hydrocodone, methamphetamine (meth), and PCP are Schedule II drugs and many abused amphetamines, barbiturates and pain meds are Schedule III drugs.  This glaring hypocrisy is one of the reasons many in the legal marijuana business in Colorado and Washington State, as well as the more than 20 states that provide legal medicinal cannabis believe that FDA and Big Pharma are the enemy — not so much the conservatives and religious groups the media tends to report.

Panelist Aaron Smith, executive director of the National Cannabis Industry Association, reported: “Colorado is doing the right things. Crime is down, the illicit Mexican pot trade has dried up, drunk driving arrests are down, and tourism is up.  Realistic tax rates keep legal cannabis at or below street prices.” (In contrast, Washington’s tax burden has marijuana priced higher than the street price.)  In fact, $11 million in cannabis taxes has been raised in Colorado in the first six months of 2014 (and an additional $6.5 million in July) along with corresponding increases in sales taxes.  Along with the tax revenues, there is a commercial real estate renaissance in Colorado, partly due to the requirement for indoor cannabis farming and sales.  Warehouse space that used to go unleased, now goes for $80 to $104 per square feet.

Cash-Based Business
Legal cannabis business, along with banking and financial services institutions, are caught in the crossfire over federal money laundering and risks of being charged with “aiding and abetting.”  Currently, under federal banking laws, the majority of those legally operating cannabis businesses that follow state laws are prevented from opening bank accounts and operating as any other businesses would.  They have to operate as cash-only enterprises, with concerns of crime such as robbery and tax evasion adding to the burden of operating a legitimate business. 

Additional panelist and Colorado’s District 7 U.S. Congressman Ed Perlmutter is working with legislators to align federal and state banking laws. 

Perlmutter and Denny Heck (WA - 10), along with a bipartisan group of 32 other Republicans and Democrats, have introduced legislation that would reform federal banking laws related to marijuana businesses. HR 2652: The Marijuana Business Access to Banking Act of 2013 modifies federal banking rules to resolve any conflict between federal and state laws and would allow legal marijuana businesses acting in compliance with state laws to access banking services.

"We need to address the public safety, crime and potentially lost tax revenue associated when these legal and regulated businesses are operating in a cash-only system,” said Perlmutter. “We also need to provide financial institutions assurance that they can make their own business decisions related to legal, financial transactions without fear of regulatory penalties or criminal prosecution."  Perlmutter went on to describe how the “chuckle factor” on Capitol Hill has gone away and legislators are seriously considering support for legal cannabis businesses using banks and financial services.  “If you operate your business in a state with regulatory agencies overseeing the growth and distribution, these businesses and banks should be exempt from (phantom) money laundering laws.”

Pericak reported his monthly payrolls, in the six figures, are paid in cash with all taxes taken out.  Federal withholding taxes are paid electronically, albeit through a discreet group of banks that fly under the radar for obvious reasons.  All other taxes and fees are paid in cash, with Perlmutter adding that, according to IRS regulations, “taxes paid in cash are subject to a 10% penalty.”  In frustration, Pericak added, “We should be allowed to bank…for God sake…wake up!”

Ultimately, a showdown with the federal government is in sight as more than 30 states are considering legalizing, decriminalizing or approving the legal sale of medical marijuana.  When asked by a member of the audience what role tobacco companies would play, moderator Bonnie Herzog, managing director, Wells Fargo Securities LLC, gave her view that they will most likely wait until marijuana is legal at the federal level before getting involved. 

Pericak commented that as Illinois moves to legalized medical marijuana, there are 21 licenses to cultivate the product up for bid in the state; two are being bid on by a major U.S. distiller and one by a major U.S. brewery.  Pericak added, “One major U.S. winery has asked me to spend some time with them” as they consider their options for entering the market.

Where convenience stores and fuel retailers play is up for discussion.  One would believe however, as goes a handful of states over the next few years, so goes the nation.  Pericak noted, “We treat our business the same way casinos in Las Vegas treat theirs.  The state requires us to monitor 100% of our facilities 24 hours a day and regulators and enforcement officials can electronically monitor our facilities at any time.”  While some operators may find this intrusive, this type of scrutiny could make stores safer and more transparent to consumers and law enforcement organizations.

Michael Davis is the NACS vice president of member services.