Under the longstanding definition of money laundering and current federal law that categorizes cannabis as an illegal substance, there is virtually no reason that Illinois Gov. J.B. Pritzker—as well as his fellow governors across the country—should not be arrested on federal charges. Consider that on an annual basis, the governors of any state that allow regulated and taxed cannabis markets to break more federal money laundering laws than Al Capone could ever imagine. The FBI should be knocking down the doors of the governors’ mansions in every state with a regulated market. And if that sounds ridiculous, it’s because it is—but not for the reason you might be thinking.
At its most basic, the crime of money laundering occurs when illegally obtained money is combined with “clean,” legally obtained cash in order to disguise its origins and allow it to be integrated into the legal economy. If there is a more precise definition of what happens when tax revenue from federally illegal cannabis sales is combined with state coffers, I’d love to hear it. Cannabis sales are taxed approximately % in many regulated markets. Those taxes are collected and used by states to fund an array of state services, from education to transportation to public safety. So while the cannabis industry is hamstrung due to IRS tax code E and the lack of access to federal banking services, traditional debt vehicles or U.S. equity markets, state governors are essentially laundering money from regulated cannabis sales. How can this be possible?
When you consider the current law, the state governments taxing these regulated markets are no different than a cartel conducting money laundering on a scale that has never been seen—much less endorsed—by a government entity in this country. This is what is patently ridiculous about the current system and why very little of it makes sense.
Consider the magnitude of the crime: According to data analytics firm Headset, cannabis sales are expected to surpass $ billion in . As new markets come online, that number will continue to multiply, so the amount of annual cannabis tax revenue being laundered through state coffers is in the billions of dollars per year, every year. Moreover, these are tax revenues generated from businesses the federal government does not recognize as legal and does not allow to operate alongside their “legitimate” counterpoints that enjoy access to banking and financial services, as well as numerous tax benefits.
The current system is unsustainable for the long haul. It also helps perpetuate the disparities of the failed War on Drugs, where rules and enforcement apply only to some, while a privileged class profits. The lack of federal banking and tax reform also helps maintain and grow the illicit market in many states. And as cannabis tax revenues grow, many states are becoming reliant on a severely flawed revenue source to fund essential government services. Recall that many of these same states were operating in the red before the cannabis cash cow came along.
As states trumpet the tax windfalls they are enjoying due to record sales of cannabis the previous year, governors should take heed. No industry can survive under conditions that maintain ludicrous levels of inequities and inconsistencies.
Now more than ever, state leaders need to stop the hypocrisy and push for safe banking reforms.
