With several states now moving forward with legalized medical or recreational marijuana regulatory schemes, how to obtain business financing remains a hurdle legal marijuana growers and distributers have yet to solve. As noted in a recent New York Times article, “financial institutions, security providers and landlords that serve marijuana businesses can be prosecuted for racketeering, money laundering and trafficking” under federal law. Marijuana continues to be a prohibited substance under federal drug laws, and as a result, federally insured financial institutions are highly unlikely to lend to marijuana businesses, even if those businesses are legitimate.

To determine how differences between state and federal marijuana laws can be resolved, the U.S. Senate Judiciary Committee held an unprecedented hearing this past Tuesday in Washington, D.C. The hearing came hot on the heels of the release of a DOJ memo that announced that federal authorities will not challenge state laws legalizing medicinal or recreational marijuana use, and set out the agency’s anticipated enforcement strategy.

At the Senate hearing, King County Sheriff John Urquhart urged that a solution be found for banks and other financial institutions that wish to do business with a state-sanctioned marijuana industry. He stated, “I am simply asking the federal government to allow banks to work with legitimate marijuana businesses that are licensed under state law.”

It is hard to say how this conflict will be resolved. Should marijuana businesses be shut out of commercial finance options, they will be forced to operate on a cash basis. Such business operations have historically been associated with tax evasion and other criminal activity. As Deputy Attorney General James Cole pointed out in the hearing, “there are no perfect solutions here. We’re at the point where we’re trying to find the best of the imperfect solutions before us.”