Democratic lawmakers are concerned about how much trouble legitimate marijuana businesses are having trying to take out loans or even open checking accounts at banks.

Many financial institutions are hesitant to work with marijuana dispensaries in states where the drug is legal for fear of being targeted by a federal government that still considers cannabis a Schedule 1 controlled substance, even though the Justice Department has said it will turn a blind eye to small-scale marijuana use in states that have approved it.

That creates a world where legal drug businesses are operating almost entirely in cash.

"That's a prescription for problems — tax evasion and so on," said Sen. Patrick Leahy, D-Vt., at a Senate Judiciary Committee hearing Tuesday.

The Justice Department agrees it's an issue. Assistant Attorney General James Cole said the department is working with the banking industry to address it.

"Obviously there is a public safety concern when businesses have a lot of cash sitting around," Cole said. "There is a tendency that there is guns associated with that, so it's important to deal with that kind of issue."

Cole also told the committee that it may be up to Congress to fix some of the pitfalls. Sen. Richard Blumenthal, D-Conn., noted that it's difficult for some medical marijuana dispensaries to apply for tax deductions without risking federal repercussions, but Cole did not think the Justice Department had the authority to take up the problem.

"There are obviously other issues that spin off of that that do need to be dealt with, and I think those are the kinds of things that the Senate and the House can debate and determine if there's an appropriate policy change to be made," he said.

The hearing was the first on the issue since Colorado and Washington legalized marijuana in the November election. As states have moved to allow for medical marijuana and others are decriminalizing or even legalizing the drug, federal law enforcement agencies have sent mixed messages on whether they intend to prosecute individuals who are violating federal law.

Last month, the Justice Department released a memo directing its agencies not to go after most federal scofflaws in states that have legalized marijuana. Instead, Attorney General Eric Holder's office directed them to target individuals who sell to minors, drive while drugged or are involved in organized crime.

Sen. Chuck Grassley, R-Iowa, said that the agency is relying too much on states that have legalized marijuana to self-police and that dismissing low-level drug offenders is the latest example of the administration picking and choosing which laws to enforce.

Grassley also warned that legalization of marijuana across the border is affecting his home state of Iowa, where the drug remains illegal. The Republican lawmaker cited studies that showed an increasing amount of marijuana brought into Iowa is coming from Colorado.

"The response of the Department of Justice isn't to strike down the laws or to prosecute illegal drug traffickers, but just let these states do it," Grassley said. "These policies do not seem to be compatible with the responsibility of our Justice Department has to faithfully discharge their duties, and they may be a violation of our treaty obligations."

Cole, however, said federal agencies will continue to monitor the sale of marijuana across state boundaries.

"That will be a federal enforcement priority," Cole said. "If it's being exported from Colorado to Iowa and we find out about it, we will prosecute it."