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November 26, 2022

Pot Taxes May Not Be Such a Cash Cow Due to, Well, the Cash

I was originally going to talk about how Colorado's pot tax revenues are in trouble due to federal laws restricting banks from accepting drug money but the best part of the Fox article I planned to link to is actually this part:

“The large cash deposits smell like marijuana, so some of the businesses are spraying the cash with room freshener or perfume to hide the marijuana smell,” [State Senator David] Balmer said. “The banks are even more suspicious when they have a person trying to deposit a large cash deposit that smells like perfume.”

Paint me skeptical but really?

So here's the real issue (stank money aside, natch), banks don't want to deal with pot businesses in Colorado because they aren't supposed to. So these businesses are sitting on huge amounts of cash — any fraudster can tell you that's a perfect day at the office to them — and most want to make right on their tax liability but how do they do that? Back up a truck full of $100s to the Colorado Department of Revenue?

Officials expect retail marijuana sales tax to put $19,729,867 into state coffers in the current fiscal year and more than twice that in the next.

But for now, tracking sales is all but impossible. Businesses have no bank statements to confirm revenue or deposits, and many have expressed concern about the robbery risk associated with handling large amounts of cash. Some have set up limited liability corporations to create one-degree of separation to try to open bank accounts, but if banks know about the arrangement, they often balk, according to Balmer.

Would any first year auditors in the audience care to raise their hand and tell the class why this might be a huge problem?

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