West Virginia Sits on Medical Cannabis Revenue for Months Over Federal Banking Fears

West Virginia has collected more than $1.2 million in medical marijuana licensing fees but hasn't spent a dollar of it, according to state officials who cite concerns about potential federal money laundering charges.

The revenue has been sitting in state accounts since the medical cannabis program began issuing licenses earlier this year. "A resolution is coming," said a spokesperson for State Treasurer Riley Moore's office, though no timeline was provided.

The holdup stems from uncertainty about whether state officials could face federal prosecution under money laundering statutes for handling funds derived from cannabis sales—even though West Virginia legalized medical marijuana in 2017. Cannabis remains a Schedule I controlled substance under federal law, creating a legal gray area that has paralyzed spending decisions in Charleston.

The Money Problem

West Virginia's medical marijuana program launched dispensary sales in November 2023 after years of regulatory delays. The state collected licensing fees from growers, processors, and dispensaries throughout 2023 and early 2024. That money was supposed to fund program administration, regulatory oversight, and related expenses.

But Moore's office has refused to release the funds without explicit legal protection from federal prosecution. The treasurer's concern centers on 18 U.S.C. § 1956, the federal money laundering statute, which could theoretically apply to state officials who "conduct or attempt to conduct a financial transaction" involving proceeds from illegal activity.

Legal experts say such prosecutions of state officials are extremely unlikely, pointing to the 2013 Cole Memo and subsequent Justice Department guidance that deprioritized enforcement against state-legal cannabis operations. Yet the Cole Memo was rescinded in 2018, and no formal replacement exists.

Industry Frustration Mounts

Cannabis businesses in West Virginia are questioning why they're paying fees if the state won't use the money to regulate their industry. "We paid these licensing fees with the expectation that the state would actually administer the program," said one dispensary operator who requested anonymity to avoid regulatory scrutiny.

The West Virginia Medical Cannabis Advisory Board has also expressed frustration. Board members have noted that proper program administration requires adequate funding—something that's impossible when revenue sits untouched.

Meanwhile, the state's medical marijuana program continues operating on a shoestring budget. The Bureau for Public Health, which oversees the program, has relied on existing staff and resources rather than dedicated cannabis revenue.

What Other States Are Doing

West Virginia isn't the first state to grapple with federal banking concerns, but it's taking an unusually cautious approach. Most states with cannabis programs have proceeded with spending tax revenue despite the federal-state conflict.

Colorado has collected and spent billions in cannabis tax revenue since 2014. Illinois, Michigan, and other newer programs have similarly used cannabis funds for designated purposes without federal interference. No state official has been prosecuted under federal money laundering statutes for handling state-legal cannabis revenue.

The SAFE Banking Act, which would explicitly protect financial institutions and state officials working with cannabis businesses, has passed the House multiple times but stalled in the Senate. Federal cannabis rescheduling efforts are ongoing but haven't resolved the underlying Controlled Substances Act conflict.

The Path Forward

The treasurer's office said it's working with the Attorney General's office to find a legal framework that would allow spending the funds. One option under discussion is seeking a formal opinion from the U.S. Attorney's Office for West Virginia clarifying that state officials won't be prosecuted.

Another possibility is waiting for federal rescheduling. The DEA has proposed moving cannabis to Schedule III, which would eliminate some legal concerns but not resolve the fundamental federal-state conflict. That process is expected to take months or longer.

For now, West Virginia's medical marijuana businesses continue paying fees into a system that can't—or won't—use the money. The state has licensed 10 growers, 10 processors, and 100 dispensaries, with more applications pending. Each paid substantial licensing fees that remain in limbo.

"We understand the concerns," the treasurer's spokesperson said. "But patients and businesses deserve a fully functioning program."

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This article is based on original reporting by www.marijuanamoment.net.