Marijuana dispensaries in states that have legalized medical pot are struggling to obtain service from banks and credit-card companies, pressured by federal authorities who consider illegal the business estimated at $1.7 billion annually.

Operators and supporters of marijuana dispensaries say banks are turning away their business because they risk falling afoul of anti-money-laundering and drug-trafficking laws.

The largest U.S. bank, Bank of America Corp, said it started withdrawing services from dispensaries after receiving a warning from the U.S. Drug Enforcement Administration in late 2007 or early 2008. The DEA said it has also told other big banks that they face potential legal liabilities if they do business with the dispensaries.

“It was a nightmare,” Sue Harank, co-owner of Denver-based dispensary Alpine Herbal Wellness, said of her efforts to find a bank. The shop opened in March 2010, and during the following six months two banks and a credit union closed her accounts, she said.

“Both banks and the credit union pursued our business initially and said they had talked to the corporate office and run it through legal, but a month or two later they all reversed themselves,” she said.

  A study by financial-analysis firm See Change Strategy said the medical marijuana business would be worth $1.7 billion in 2011 and is growing. While some states have legalized dispensaries, the federal government does not recognize states’ authority to do so and it considers the businesses illegal.

“They’re operating according to state law, but because of conflict with federal law, they can’t get credit card processing services and they can’t keep bank accounts open,” said Keith Stroup, founder of NORML, a lobbying organization working to legalize marijuana.

‘ENFORCEMENT PRIORITY’

NORML says 16 states and the District of Columbia have enacted various medical-marijuana use statutes. Some states allow sales through dispensaries, while others require the marijuana users to grow the drug themselves.

Supporters of medical marijuana say the drug helps patients with chronic illnesses including cancer, AIDS and multiple sclerosis. Critics say the dispensaries cater more to recreational pot users than patients.

The biggest two states for the medical marijuana business are California, with a market size of $1.3 billion, and Colorado, which is considered the most business friendly.

In October 2009, Deputy U.S. Attorney General David Ogden issued a memorandum that said the Justice Department was unlikely to pursue individual cancer patients and others who use marijuana as intended by state medical-use laws.

But Ogden also said “prosecution of commercial enterprises that unlawfully market and sell marijuana for profit continues to be an enforcement priority of the department.”

The memo says that evidence of money laundering or excessive profits might be a reason for targeting a dispensary.

California brothers Winslow and Abraham Norton are scheduled to go in trial in September on a 2007 indictment for violating federal drug trafficking and money-laundering charges with their marijuana dispensary. Court documents stated that the brothers held accounts at Bank of America.

Bank of America spokeswoman Shirley Norton said the bank started exiting its relationships with dispensaries after getting the DEA alert. “We do not provide banking services to medical marijuana businesses,” Norton said.

DEA spokesman Rusty Payne confirmed that the administration advised Bank of America that marijuana, medical or otherwise, is illegal under federal law and that offering financial services to dispensaries “can open you up to liability.”

Financial institutions have not yet been specifically targeted by the Justice Department for prosecution for serving dispensaries, and U.S. President Barack Obama has stuck by a campaign vow to halt widespread raids of medical-marijuana facilities.

However, department spokeswoman Jessica Smith pointed to guidance letters drafted by federal prosecutors in California, Illinois and Arizona which characterized dispensaries, in general, as drug traffickers.

One of the letters, written by U.S. Attorney Melinda Haag of the Northern District of California and released in February stated that property owners, landlords and financiers who aid marijuana distribution businesses “should also know that their conduct violates federal law.”