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CONTINUING COVERAGE: MARIJUANA Cash-heavy marijuana businesses plead with lawmakers to change banking rules Marijuana businesses plead with lawmakers to change banking and tax rules Comment By Damian Mann Mail Tribune MailTribune.com By Damian Mann Mail Tribune Posted Oct. 23, 2015 at 4:34 PM Updated Oct 23, 2015 at 5:02 PM By Damian Mann Mail Tribune Posted Oct. 23, 2015 at 4:34 PM Updated Oct 23, 2015 at 5:02 PM » Social News After banks refused to open an account for Karen Sprague, the Southern Oregon marijuana entrepreneur got creative and started her own bank to bolster security for her cash-only business. “We leased an old bank and hired a vault teller,” said Sprague, owner of the CO2 Co. based in Ashland. Piles of cash have poured into Sprague’s company and into other cannabis businesses throughout the state, but federally regulated banks say they can't do business with the industry because marijuana is still classified as an illegal substance under federal law. The cash-only business is proving to be a hurdle for the dispensaries. It makes it more difficult and time-consuming to pay their bills, and handling that much cash poses a security issue. “It’s such a problem,” Sprague said. “We have a lot of overhead and bills that have to be paid. We pay in cash or money orders. Think about how much extra work that takes. And think about what a public-safety issue it is. We need banks so bad.” Sprague’s temporary solution was to lease a former bank building at an undisclosed location in the Portland area that features a massive vault to store her cash. The bank is now a cannabis wholesale outlet as well as a place where 175 dispensary owners throughout the state can pick up extracts and other products made by her company. She said it is one of several locations set up statewide to help move cash and product from one location to another. But while she now runs her own "bank," Sprague still can’t write checks or send money electronically. Sprague said in addition to handling receipts, the businesses need to pay for employees, alarm systems, cameras, vaults and utility bills. They also need to pay taxes, including to the federal government, which doesn’t allow the cannabis industry to take the standard deductions allowed other businesses. Sprague and 25 members of the Oregon Cannabis Association flew to Washington, D.C., this week to appeal to congressional representatives to change federal law so they can set up bank accounts in states where marijuana is legal. “This trip has been very successful,” Sprague said. She said many lawmakers seem sympathetic to pushing through legislation that would help lift the restrictions on banking. They’ve also pressed for changes to allow the Internal Revenue Service to treat them like any other business. David Tucker, an IRS spokesman, referred to the agency's code, Section 280E, which states that no deduction or credit can be allowed for any trade or business that consists of trafficking in controlled substances that are prohibited by federal law. Marijuana is listed as a Schedule I drug, along with heroin by the federal government, even though it has been declared legal for medical or recreational use in nearly two dozen states and the District of Columbia. The Oregon Department of Revenue is developing procedures for handling the taxes that will be generated by recreational sales of marijuana. “I don’t think we have nailed down all the details of it yet,” spokesman Bob Estabrook said. “What we’re working on and planning for is payments in cash.” Estabrook said business deductions are being worked on for retail sales of recreational marijuana, but not on the medical marijuana side, which operates under different state laws. “For that, you can’t deduct anything,” he said. “Medical marijuana has not been changed.” Oregon State Treasurer Ted Wheeler called on the U.S. Department of the Treasury recently to increase access to banking services. "Regulatory regimes must catch up with the practical effects of the rapid evolution in public attitudes and policy preferences toward marijuana," he wrote. Michael Monarch, chief executive officer of Green Valley Wellness in Talent, said he is eager for banking reform and to be able to make standard business deductions. “We have a lot of cash flowing in, but most of it just flows out to pay all the bills,” he said. “There is very little profit in this industry.” If he could take deductions for employees, Monarch said, he could add four or five workers to his 10-person business. “Right now, it is extremely difficult to operate a standard business without standard deductions,” he said. However, he notes, the IRS still wants the tax revenue from cannabis businesses. “The biggest issue comes down to the double standard the IRS is putting on us,” he said. “They have their hand out to be paid, and they even have protocols set for accountants on how to deal with a cannabis business, yet they don’t allow any deductions outside of cost of goods.” Most of an employees’ wages are also not tax deductible for a business other than the time spent by employees in preparation of goods for sale, Monarch said. At the same time, Green Valley Wellness is still paying employee taxes and Social Security, he said. “The feds are having their hands out in a big way, but they’re not allowing us to write those off,” Monarch said. Monarch said he's put in a number of security measures because he has an all-cash business. But with so much cash on hand, Monarch said, it takes one person two days out of each month to process all the money. The cash and the marijuana are also a target for thieves. On Nov. 30, 2014, his silent alarm system helped foil a nighttime burglary after a 26-year-old Talent man allegedly smashed two windows. Police officers who arrived on the scene said they saw the suspect stealing products from the clinic. After a foot chase, police arrested Saul Garcia-Cruz on charges of second-degree burglary and possession of burglary tools. Monarch said there were only some marijuana edibles taken and noted most things of value are locked up in a large safe that is bolted to the floor. He said Green Valley Wellness is required to install security measures by the state but also has gone above and beyond those requirements. “We have extreme security,” he said. Reach reporter Damian Mann at 541-776-4476 or [email protected] . Follow him on Twitter @reporterdm . By Damian Mann Mail Tribune MailTribune.com By Damian Mann Mail Tribune Posted Oct. 23, 2015 at 4:34 PM Updated Oct 23, 2015 at 5:02 PM » Comment or view comments Reader Reaction » STAY INFORMED Email NewsLetter Sign Up Today Sign up for our newsletter and have the top headlines from your community delivered right to your inbox. Southern Oregon Directory Featured Businesses Loading... 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