Signup for our free newsletter:

The Federal Reserve's War on Marijuana

Written By Geoffrey Pike

Posted January 4, 2016

fedtheWhen Barack Obama was originally campaigning for the presidency in 2008, he indicated that he would take a more hands-off approach in terms of states legalizing marijuana (medical or otherwise).

For a long while, it looked as though the Drug Enforcement Agency hadn’t received the memo from Obama. Like so many other campaign promises, Obama was breaking this one as well, with federal agents continuing to raid marijuana dispensaries, even where it had been legalized by state law.

Since Colorado essentially legalized marijuana in 2012 – which included recreational use – the federal government has surprisingly been less active raiding dispensaries, although they have not completely stopped.

And before giving too much credit to Obama, the somewhat hands-off approach isn’t Obama acknowledging the 10th Amendment and states’ rights. It is more political than that. Obama knows it would not have been a popular position to go into Colorado (or elsewhere) and override popular opinion, especially when it had already been put to a vote.

Unfortunately, that is not the end of the story. The federal government is still hampering the marijuana business in states where it has been legalized, even if the DEA is cutting back on its knocking down doors in midnight raids.

If you can believe it, the Federal Reserve is involved in this part of the story. Yes, the central bank of the United States, which controls the nation’s money supply, is involved in the marijuana business, but not in a good way.

This is showcased by a case in U.S. District Court in Colorado that recently heard arguments debating the precedence of state versus federal laws.

Fourth Corner Credit Union is suing the Federal Reserve Bank of Kansas City because the Fed denied Fourth Corner’s application for a master account, which would be used for the banking needs of businesses in the cannabis industry.

So while the federal government is sort of ignoring federal laws against cannabis in states where it has been legalized (at least for now), the federal government is still attempting to enforce its archaic banking laws that seem to punish the innocent far more than the guilty.

A master account provides banks and financial institutions with a nine digit routing number that enables the institution to participate in the Fed’s check clearing system. Without it, businesses are essentially forced to do much or all of its business in cash.

Decentralization and States’ Rights

The central bank will not approve a master account due to federal laws against marijuana in commerce. Most federal laws are justified based on the Commerce Clause, so why not one more justification?

In this case, the central bank actually argued that allowing a master account for the cannabis industry would be similar in nature to approving a master account for a credit union handling the finances for companies involved in illegal trading with North Korea.

I’m not sure if this points to the stupidity of the central bank and its defense team or if it just emphasizes the stupidity of federal marijuana laws.

This is a typical example of how the federal government operates. It often persecutes and prosecutes people for these other vague federal laws. We can’t even begin to count the number of times people have been accused of victimless crimes such as insider trading. It is tough to prove people’s intentions.

Instead, the person accused ends up going to jail for obstruction of justice, or bank fraud, or money laundering, which are all vague laws used to ensnare people who can’t be convicted of a real crime.

In this case of using banking laws to prohibit legitimate businesses from using banks, it endangers the businesses, their employees, and even their customers. It forces many of them to deal in cash, in fear of getting in trouble with the federal government. This makes doing business tough for a business doing thousands of dollars a day in sales.

The entire federal war on drugs is unconstitutional. This is not a constitutional function of Congress or any of the bureaucracies inhabiting Washington DC. It is not an enumerated power.

The banking laws are also unconstitutional, even though it is a little tougher to make the argument. Still, this is a clear case of the federal government intervening in something that is clearly a state issue.

If this case goes against the credit union as expected, maybe the people of Colorado need to demand that the state government take an even stronger stand against the feds. However, the state government has already attempted to issue a charter for the banking and credit union industry, but is still being blocked by the Federal Reserve.

This is one of the many problems popping up due to the existence of the central bank and the heavily regulated banking industry. It makes decentralization in other areas tougher.

Ultimately, more people are going to have to become aware of this situation and demand that the federal government – including the Federal Reserve – back off on essentially prohibiting banking for those in the cannabis business. Popular opinion is one thing that can stop this madness.