Legal Weed Is Now a Legitimate Business, But Banks Are Still Acting Cagey About Handling the Money

Retailers in Colorado began selling marijuana to any adult 21 or older New Year's Day, but most still lack the basic banking services used by every other legal business in the state. Industry experts fear this leaves the burgeoning marijuana industry vulnerable to the potential robberies, tax-evasion, wage theft, and money laundering that plague some cash-only businesses.

At issue are federal regulations that strongly prohibit financial transaction tied to illegal drug dealing, which in the eyes of the federal government, applies to every state-legal pot shop and medical marijuana dispensary.

As Don Childears, president and CEO of the Colorado Bankers Association, told the Denver Post, “[F]ederal law says any entity that holds deposits from another person, transfers funds between parties as in checks, debit cards, wire transfers, or otherwise is connected to the payments system — the movement of money from one financial entity to another party — must abide by federal law. That means you can't bank marijuana businesses now per federal law. Without the payment system, such an entity would amount to a big vault — cash in, cash out.”

Betty Aldworth, deputy director of the National Cannabis Industries Association and the advocacy director for the campaign that legalized marijuana in Colorado, said in a statement that owners and operators in the legal cannabis industry struggle daily with operational and safety challenges presented by the lack of access to basic banking services like checking and savings accounts.

“A lack of access to banking services is, quite frankly, the single most dangerous thing about the legal sale of marijuana for medical or social use,” she said.

There have been numerous cases just last year where criminals have taken advantage of these cash-only marijuana outlets. In November, two masked men held up a Boulder dispensary and in August, four people were charged with the armed robbery of a Denver dispensary. The shop named Seattle’s Best Dispensary by Seattle Weekly was robbed in November by two armed and masked subjects. Robberies in California include a shootout with a security guard in Palmdale, employees forced to strip naked by robbers in San Diego, and two shooting deaths during a robbery in Bakersfield. 

Toni Fox, owner of 3-D Cannabis Center in Denver (where Iraq war vet Sean Azzariti made the nation’s first legal weed purchase, to combat his PTSD), said, “The widespread perception that cannabis retailers hold large amounts of cash, despite top-notch security and monitoring, creates an inherent danger for businesses owners, employees and communities alike.”

Legislators at the state level have little recourse to assist their state’s newly legal businesses in finding banking services. Washington State Sen. Bob Hasegawa of Seattle has proposed a state-owned banking system, similar to the Bank of North Dakota, which is the only state-owned bank in the nation. But that system still leaves such a bank in the lurch when it comes to processing the money a marijuana business might deposit. Fred Joseph, Colorado's commissioner of banking noted that all non-cash banking transactions, such as ATMs, electronic funds transfers, credit card processing and checking, must clear the Federal Reserve System. The bank could take a pot shop’s cash, he explained, but then couldn’t do anything with it.

At the federal level, several legislators have banded together to propose bills that would ease the anti-drug-money-laundering regulations for banks in legal marijuana states. Representatives Ed Perlmutter (CO-07) and Denny Heck (WA-10), along with a bipartisan group of 24 other representatives, introduced HR 2652: The Marijuana Business Access to Banking Act of 2013, but it languished in the House Judiciary Subcommittee on Crime, Terrorism, Homeland Security, and Investigations back in September.

The federal government gave a qualified green light to Washington and Colorado’s legal marijuana markets by signaling in an August Department of Justice memo that the feds would not be interfering with the legal marijuana states so long as they abide by eight federal priorities that include fighting out-of-state diversion, use by children, and driving under the influence. However, nothing in the memo that allowed the businesses to flourish addressed how they would handle banking. The governors of Colorado and Washington have pressed the feds for such guidance on the banking issue, but so far, the government has remained officially mute on the subject.

Working to provide banking for the marijuana business market involves several agencies at the federal level, including the Justice Department, the Financial Crimes Enforcement Network, the Federal Deposit Insurance Corporation, the Federal Reserve Board, the Office of the Comptroller of the Currency, and the National Credit Union Administration. Recently, FinCEN director Jennifer Shasky Calvery acknowledged her agency has begun discussions with the DOJ. The Department of Treasury told the Colorado and Washington governors, “We understand the need for additional clarity [on marijuana banking] and have initiated discussions with our colleagues at the Department of Justice.” Meanwhile, the Fed, FDIC, OCC, and NCUA are all waiting on DOJ and FinCEN to act, explaining that until those two work out their approach to legal marijuana banking, “it is premature [for us] to provide guidance to the banking industry.”

“The question is: is guidance really enough?” asks Jim Pishue, president of the Washington Bankers Association. “I'm not sure that would be enough for banks to get comfortable getting into that line of commerce.” A mere memo of guidance might not encourage banks that are wary of a change of administration that could bring with it a tougher federal approach on pot. For some banks, no change in law or guidance will encourage them to do business with a marijuana industry they find distasteful, but other banks and credit unions are waiting with anticipation for any signal from the feds that they can get in on the marijuana gold rush.

Meanwhile, the pot keeps growing and the money keeps flowing in the newly legal marijuana market, estimated to top $1.44 billion annually in the US. Washington state will open its legal marijuana markets this spring, Alaska and Oregon and perhaps California will be campaigning for legalization in 2014, and 15 of the 20 medical marijuana states will have some type of legal dispensaries. This is an issue on which the federal government can afford no more delays.

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