Senate Debates the Pot Law Loophole

While the rest of us live under the thumb of the federal government’s marijuana prohibition, two states are allowed to craft their own cannabis laws. Some lawmakers are not pleased about that.

On Tuesday, the Senate Judiciary Committee held a confrontational hearing about the matter, hammering Deputy Attorney General James Cole about his department’s recent decision to let Washington and Colorado determine their own weed regulations after voters there essentially legalized marijuana in 2012. On August 29, the Justice Dept. issued a statement, signed by Cole, that stated that the federal government was “deferring its rights to challenge” the states’ legalization laws. The move has been criticized as a “wait and see” technique.

Cole defended the department’s decision, but was less than enthusiastic about it. “There are no perfect solutions here,” he said. “Our hope is that with our memo [states] will have the incentive to put in a robust scheme…We’re hoping that that kind of effort by the state, reinforcing its own state laws, will have a better effect than having no effort at all.”

Plus, he testified, the DOJ would still keep an eye on the measures taken by law enforcement in those two states. Red flags—such as a rise of cannabis sales in neighboring states or increased exposure to children under the legal age of 21—would make the federal government intervene. “We are not giving immunity, we are not giving a free pass, we are not abdicating our responsibilities,” explained Cole.

At least one senator, however, was critical of the government’s decision to take a backseat on the issue.

Senator Chuck Grassley, an Iowa Republican, questioned how the states could ensure that the drugs wouldn’t get into the wrong hands. He cited a study he had found (The Daily Beast was unable to determine which one) that showed both Colorado and Washington had previously failed to effectively enforce the same measures for medical marijuana.

“It seems unlikely that we can confine the industry’s use of marijuana for adults within the states of Washington and Colorado,” Grassley said. “These policies do not seem to be compatible with the responsibility of our Justice Department who has discharged their responsibility.”

The committee also debated the practical issue of how to regulate a newly legal marijuana industry in only two states while it remains forbidden in the rest. Indeed, potential cannabis sellers face a number of business obstacles. Under a section of the Internal Revenue Code, companies making money from marijuana sales aren’t eligible for tax deductions. Additionally, federal law makes businesses that sell drugs that are listed under the Controlled Substance Act—like marijuana—ineligible for bank loans and even prevents them from opening bank accounts and obtaining credit cards.

“Businesses forced to operate as cash-only businesses because they are denied access to the banking system are a magnet for crime and criminal activity,” said Jack Finlaw, legal counsel to the governor of Colorado, in a prepared statement. “It is more difficult to account for and track revenues and audit tax payments of businesses that do not use financial institutions.”

Several members of Congress have already proposed legislation to try to address the divide between federal and state marijuana law. The bipartisan Respect State Marijuana Laws Act of 2013, sponsored by Rep. Dana Rohrabacher (R-CA) would prohibit the federal government from prosecuting any person who was following state marijuana laws, even if they were violating a federal statute. In addition, Rep. Ed Perlmutter (D-CO) introduced the Marijuana Businesses Access to Banking Act which would allow legal marijuana sellers to get bank loans.

None of these laws are likely to be enacted any time soon, though. And, until Congress acts affirmatively, Cole said the DOJ will be dealing with these issues as they come, on a case-by-case basis. That will have to do for now.