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The U.S. Department of Justice is working with federal regulators to allow banking services for pot merchants in Washington and Colorado, the two states that have legalized adult possession of small amounts of marijuana.

Deputy Attorney General James Cole acknowledged the current dilemma, that without changes at the federal level, legal pot stores will operate on a cash-only basis because banks fear they’ll violate federal law by accepting pot money.

“We are currently talking with bank regulators on ways we can deal with this,” Cole told a U.S. Senate hearing on the conflicts between states and the federal law, which prohibits all pot.

That was the chief news to come out of what some considered a historic congressional hearing, the first to occur since the Department of Justice (DOJ) last month said it would not sue to stop Washington and Colorado from moving ahead with state-regulated legal marijuana.

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“The Department of Justice is finally taking seriously the dangers that a lack of access to simple banking services poses to consumers, employees and business owners,” said Aaron Smith, executive director of the National Cannabis Industry Association, a trade group that has lobbied for a fix to the banking snag.

Mark Kleiman, Washington state’s top pot consultant, found the hearing more of a mixed bag.

Kleiman said he was frustrated the DOJ is not pursuing more formal legalization contracts with states, instead of its current policy of “muddling through” between outright support and opposition.

More encouraging, Kleiman said, was that King County Sheriff John Urquhart told senators he would enforce laws against the illicit marijuana industry, which would help Washington’s legal pot experiment succeed. Kleiman said he was also pleased there wasn’t “much push back” from senators to the new DOJ policy.

“Questions and answers we have today will have implications for the rest of the country,” said Sen. Patrick Leahy, D-Vt., chair of the Senate Judiciary Committee at the outset of the 100-minute hearing. Much of the meeting was dedicated to assurances from the DOJ and state representatives that they wouldn’t allow pot to be marketed to minors or leak into other states.

Leahy said he didn’t think federal prosecution of low-level marijuana cases should be a priority.

Sen. Chuck Grassley, R-Iowa, took a very different stance, saying Colorado and Washington now contradict federal law and may create a Big Marijuana industry that preys on youth in his state. Grassley criticized President Obama, saying the DOJ memo was “another example of this administration ignoring laws it doesn’t like.”

The diverging views of the two most senior senators on the committee suggested the challenges ahead for legal marijuana. While there is legislation in the U.S. House that would allow banking services for legal pot, co-sponsored by Democratic Rep. Denny Heck of Washington, no sponsors have stepped up for a similar bill in the Senate.

An easier solution to the banking problem would be an administrative order directing the Treasury Department to stop requiring regulatory reports whenever a bank handles what it thinks is marijuana money.

Cole’s response suggests the federal government is working on the latter, easier course. Leahy said the DOJ should offer “specific guidance to Treasury.”

Leahy also told Cole that the Drug Enforcement Administration’s recent warning that armored transport companies should not engage in legal pot business was a “significant step away from reality.”

Cole said DEA was merely asking questions and that was before Cole’s memo last month that said the federal government wouldn’t sue to stop legal pot in Colorado and Washington if their systems adhered to eight federal priorities, such as preventing youth access to pot and preventing legal pot from leaking into other states.

Urquhart later told the committee his concerns about cash-only pot stores. “They will be prime targets for robberies and very difficult to audit,” Urquhart said.

Cole emphasized the DOJ will still aggressively enforce federal law in Colorado and Washington against those not complying with its priorities. “We are not giving immunity. We are not giving a free pass. We are not abdicating our responsibility,” he said. “If we see marketing in a way attractive to minors, we’re going after them. If they’re involved in cartels or illegal enterprises, we’re going after them.”

But Kevin Sabet, founder of a group opposed to legalization, predicted the current federal path would lead to a big marijuana industry that, in the words of local pot entrepreneur Jamen Shively, would “mint millionaires” in businesses he likened to Starbucks.

“Why open the floodgates now,” Sabet asked of the DOJ policy, “and hope for the best?”

Sabet, who leads Smart Approaches to Marijuana, noted that pot advocates gave away more than 600 joints in Denver on Monday as part of a protest against proposed pot taxes in Colorado. He also said 50,000 people got stoned during a typical day at Seattle’s Hempfest last month. He said there’s little evidence so far that Colorado and Washington will rein in their nascent pot industries.

But Urquhart and Colorado official Jack Finlaw disagreed, citing the tight regulations being drawn up in their respective states.

Urquhart referred to some of Sabet’s comments as “urban myths.”

He told senators of an experience he had in Washington, D.C., before the hearing. He said he was walking near the White House after dinner when he saw a man approach another and ask if he had weed to sell.

The man “asked the most sketchy guy on the block if he could buy weed from him,” Urquhart said. “Our Initiative 502 is going to eliminate all that. It’s a huge step forward.”

Bob Young: 206-464-2174 or

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