Pubdate: Thu, 9 Dec 2010
Source: Boulder Weekly (CO)
Copyright: 2010 Boulder Weekly
Contact:  http://www.boulderweekly.com/
Details: http://www.mapinc.org/media/57
Author: Jefferson Dodge
Bookmark: http://www.mapinc.org/find?277 (Cannabis - Medicinal - Colorado)
Bookmark: http://www.mapinc.org/topic/dispensaries

SKUNKY MONEY

Why Won't Banks Treat Dispensaries Like Other Businesses?

Over the past year, banks as small as Elevations Credit Union and as 
large as Wells Fargo have shuttered accounts held by medical 
marijuana dispensaries, forcing the owners of those businesses to 
scramble for alternatives.

The dispensaries are caught in a Catch-22. State officials want to 
increase accountability by tracking every marijuana plant and every 
transaction, but without bank records, that becomes difficult.

Still, help may be on the way. At least one consultant is introducing 
a sophisticated computer tracking system that documents medical 
marijuana from seed to sale. There is also an effort to create a 
state credit union that caters to the medical marijuana industry. The 
one lingering problem: the small matter of finding someone willing to 
pony up the several million dollars needed to start such a bank.

Denver attorney Jessica Peck Corry of Hoban & Feola says banking for 
the medical marijuana industry is still an untapped market that could 
be captured by a bank or credit union that is regulated at the state 
- - instead of federal - level.

"A credit union model specific to the industry would allow businesses 
to lift the veil of stigma from their operations and work together to 
help their respective aspirations thrive," she told Boulder Weekly. 
"The challenge will come in raising a substantial amount of private 
equity to get a credit union started, about $4 million based on 
proposals we've seen. This industry is becoming more sophisticated by 
the day, and we're hopeful this type of model could become reality 
within the next year or two."

The problem with providing banking services to dispensaries lies in 
the fact that while medical marijuana is legal at the state level, it 
is still classified as a schedule I controlled substance at the federal level.

Elevations Compliance Manager Cenobio Chacon told Boulder Weekly 
earlier this year that the Bank Secrecy Act of 1970 requires 
financial institutions to help the government prevent money 
laundering, tax evasion and other criminal activities. As a result, 
he said, any transactions suspected of not being conducted legally 
must be reported, he says, and the compliance efforts involved in 
policing clients in industries like medical marijuana are too costly 
for most banks to undertake.

Tim Powers, vice president of communications for the Colorado Bankers 
Association, describes it this way: "Current bank regulations require 
us to broadly know what type of business our customers are operating 
in, and determine that the business is not blatantly operating an 
illegal business, or engaging in illegal activity. With regard to 
medical marijuana dispensaries, unfortunately the banks are caught 
between conflicting state and federal laws - one saying this action 
is legal and another saying it is not. Possible non-compliance with 
our regulations carry strict and costly penalties.

"Many individual banks have approached regulators for guidance on 
this issue since the inception of Colorado's medical marijuana law," 
he continues. "Some have been told to be 'very cautious' and warned 
of potential compliance issues with current regulations, while 
recently others have unofficially been told to not open these 
accounts until rules and guidance has been established.

"It is an unusual quagmire we hope regulators will address soon."

David Barr, spokesperson for the Federal Deposit Insurance 
Corporation (FDIC), told Boulder Weekly, "The FDIC has not issued any 
prohibitions for our banks in their dealings with businesses that are 
engaged in medical marijuana dispensaries."

But the banks have seen the writing on the wall.

Not being able to open a bank account has put dispensary owners in a 
pickle, especially as state officials push for more transparency and 
documentation of medical marijuana transactions.

Corry says the few dispensaries and banks that are still in business 
together have a "don't ask, don't tell" policy.

"Given that FDIC-insured banks remain wary of opening accounts for 
medical marijuana-related businesses, Colorado's industry finds 
itself in a tough spot," she says. "The new state rules require full 
transparency and standard business practices, but federal prohibition 
makes this difficult. These circumstances encourage cash transactions 
and money orders. As far as lending, we've seen an innovative private 
lending market thrive. Many of our clients' businesses are family 
owned and operated, so we see a lot of lending provided by 
grandparents, parents, aunts, uncles and siblings."

One Boulder dispensary owner who did not want to be identified says 
he has lost five bank accounts in a little more than a year. He says 
there were two banks in Colorado Springs willing to work with 
dispensaries, but now there is only one, and it charges $200 a month in fees.

Some dispensaries have turned to brokerage accounts at small 
companies for their merchant services, like for credit card transactions.

But cash, which is used in the majority of dispensaries' 
transactions, is another matter.

"People are doing all kinds of crazy things with cash," he says. 
"There are a lot of ways that are not quite kosher."

Those include creating a bank account under one's own name or under a 
business name that doesn't allude to medical marijuana. Some have 
started unrelated companies just to have a bank account, which he 
says "technically is money-laundering. You're not supposed to do 
that, but it's the only way to get around it."

He adds that some dispensaries have not lost their accounts because 
their business name is innocuous or because they don't have a website 
where banks can learn about their services. It's another Catch-22, he 
says, when you need to have an online presence to sell your products, 
but by doing so you risk losing your bank account.

He points out that dispensaries can't do employee withholdings for 
things like federal taxes, Social Security and Medicare without a bank account.

"To run a business without a bank account is almost impossible," he 
says. "Everybody's being pretty quiet about this. Nobody wants to say 
what they're doing. We have enough trouble with this business as it 
is; we don't need more."

By several accounts, the lone remaining bank in the state that has 
publicly declared its willingness to do business with dispensaries is 
Colorado Springs State Bank. Bank employees referred all questions to 
bank President Alan Gregory, who did not return calls from Boulder Weekly.

Henri Morin, co-owner of Colorado Patients First, says that Colorado 
Springs State Bank is willing to put drop boxes in Boulder and 
Longmont for those who don't want to make the three-hour round trip 
to make daily cash deposits. He says he is not sure what other 
dispensary owners are doing with their cash because they are "very secretive."

He says he may end up doing business with that Colorado Springs bank 
because his days of having an account with Wells Fargo are numbered. 
Morin says he had hoped to open an account at Bank of the West, since 
he knows of several dispensaries that have had accounts there, but 
after meeting with bank representatives last week, he's not 
optimistic that they will accept dispensaries much longer.

Asked whether his bank recently decided to stop doing business with 
dispensaries, Bank of the West spokesperson John Stafford said, "I 
cannot verify that at one time we did business with medical marijuana 
dispensaries." He also would not comment on whether the bank has 
closed any dispensary accounts.

"I don't know what happened, probably something with the feds," Morin 
says of Bank of the West. "It's amazing. At the beginning, everybody 
wanted the business, and now there's no one."

He also expresses concern that regulations are being decided at the 
state level by a Department of Revenue advisory committee that 
doesn't accept public comment at its hearings.

We are very nervous," Frank Horwich, co-owner of Boulder Medical 
Marijuana Center, says of dispensaries that have managed to maintain 
accounts, whether with banks, brokers or investors. "It makes it just 
terrifying. . We try to hedge our bets and not have our eggs in one basket."

He declines to divulge the names of the firms he has accounts with, 
for fear of losing them.

As for doing business with Colorado Springs State Bank, Horwich says 
that even with drop boxes, it will take longer than it should for 
deposits to be recorded, which might present a cash-flow challenge 
for some dispensaries.

"It's a nightmare to have that cash lying around," he says, alluding 
the risk of burglary. "I have a bunch of cute little girls working in 
my store, and I don't want to put them at risk."

In most cases, the lack of a bank means no real estate transactions, 
no mortgages, no leases, Horwich says.

"In this business, nobody will under write any kind of financing," he 
explains. "I do not know how you can operate without a bank account."

When asked about the idea of a state-chartered bank or credit union 
expressly for medical marijuana dispensaries, Horwich says such an 
entity could corner the market and charge high rates.

"They'd be the most loved and the most hated in the industry," he says.

Nicholas King, co-owner of Alpine Herbal Wellness and a member of the 
Department of Revenue's rulemaking advisory committee, guesses that 
every dispensary in the state has had at least one of its bank accounts closed.

While some dispensaries are "hanging on" to their accounts because 
they have a long relationship with their bank, he says, others have 
lost their accounts because their bank was alerted to their line of 
work after the Department of Revenue contacted their bank as part of 
the state licensing process.

King says he has turned to Colorado Springs State Bank for banking services.

"We want to be above-board," he says.

For now, some are still holding out hope that a private option will pan out.

"We're cautiously optimistic about the prospect of a private credit 
union model and have seen some really dynamic models put forth," 
Corry says. "While the industry still suffers from dated stoner 
stereotypes, sophisticated financial planners and strategists are 
involved in growing numbers."

Denver consultant Christopher Sterling uses high-end 
business-tobusiness jargon like "enterprise distribution system" and 
"client portal" when discussing the tracking system he is pitching to 
marijuana-growing operations, dispensaries and state officials.

Like the electronic real-time systems and portable scanners used by 
UPS, Federal Express and Wal-Mart, he says, the software and hardware 
products he is peddling will provide state officials and others the 
transparency they desire by documenting medical marijuana from the 
time it is planted to the time it is sold, using GPS technology and 
radio frequency identification. "This legitimizes the businesses," he says.

Corry concludes, "We hope the federal government will acknowledge the 
value of MMJ businesses for local banks and reverse its current 
policies. Congressman Jared Polis has been a strong supporter of 
state MMJ rights and has lobbied his fellow lawmakers to support change here.

"Time will tell."  
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MAP posted-by: Richard Lake