Pubdate: Sun, 12 Jan 2014
Source: Buffalo News (NY)
Copyright: 2014 New York Times
Contact: http://drugsense.org/url/GXIzebQL
Website: http://www.buffalonews.com/
Details: http://www.mapinc.org/media/61
Author: Serge F. Kovaleski, New York Times

BANKS CAN'T CASH IN ON LEGAL POT BUSINESS

SEATTLE - In his second-floor office above a hair salon in north 
Seattle, Ryan Kunkel is seated on a couch placing $1,000 bricks of 
cash  dozens of them  in a rumpled brown paper bag. When he finishes, 
he stashes the money in the trunk of his BMW and sets off on an 
adrenalized drive downtown, darting through traffic and nervously 
checking to see if anyone is following him.

Despite the air of criminality, there is nothing illicit in what 
Kunkel is doing. He co-owns five legal medical marijuana 
dispensaries, and on this day he is heading to the Washington state 
Department of Revenue to commit the ultimate in law-abiding acts: 
paying taxes. After about 25 minutes at the agency, Kunkel emerges 
with a receipt for $51,321.

"Carrying such large amounts of cash is a terrible risk that freaks 
me out a bit because there is the fear in my mind that the next car 
pulling up beside me could be the crew that hijacks us," he said. 
"So, we have to play this neverending shell game of different cars, 
different routes, different dates and different times."

Legal marijuana merchants like Kunkel  mainly medical marijuana 
dispensaries but also, starting this year, shops that sell 
recreational marijuana in Colorado and Washington  are grappling with 
a pressing predicament: Their businesses are conducted almost 
entirely in cash because it is exceedingly difficult for them to open 
and maintain bank accounts, and thus accept credit cards.

The problem underscores the patchwork nature of federal and state 
laws that have evolved fitfully as states have legalized some form of 
marijuana commerce. Though 20 states and the District of Columbia 
allow either medical or recreational marijuana use  with more likely 
to follow suit  the drug remains illegal under federal law. The 
Controlled Substances Act, enacted in 1970 classifies marijuana as a 
Schedule I drug, the most dangerous category, which also includes 
heroin, LSD and ecstasy.

As a result, banks, including state chartered ones, are reluctant to 
provide traditional services to marijuana businesses. They fear that 
federal regulators and law enforcement authorities might punish them, 
with measures like large fines, for violating prohibitions on 
money-laundering, among other federal laws and regulations.

"Banking is the most urgent issue facing the legal cannabis industry 
today," said Aaron Smith, executive director of the National Cannabis 
Industry Association in Washington, D.C. Saying legal marijuana sales 
in the United States could reach $3 billion this year, Smith added: 
"So much money floating around outside the banking system is not 
safe, and it is not in anyone's interest. Federal law needs to be 
harmonized with state laws."

The limitations have created unique burdens for legal marijuana 
business owners. They pay employees with envelopes of cash. They haul 
Chipotle and Nordstrom bags containing thousands of dollars in $10 
and $20 bills to supermarkets to buy money orders. When they are able 
to open bank accounts  often under false pretenses  many have taken 
to storing money in Tupperware containers filled with air fresheners 
to mask the smell of marijuana.

The all-cash nature of the business has also created huge security 
concerns for business owners. Many have installed panic buttons for 
workers in the event of a robbery and have set up a constellation of 
security cameras at their facilities beyond what is required, as well 
as floor sensors to detect breakins. In Colorado, Blue Line 
Protection Group was formed a few months ago, specializing in 
protecting dispensaries and facilities that grow marijuana, and in 
providing transportation security. The firm largely uses military 
veterans who have Special Operations experience

Marijuana business owners have devised strategies to avoid the 
suspicions of bankers. A number of legal operations have opened 
accounts by establishing holding companies with names that obscure 
the nature of their business. Some owners simply use personal bank 
accounts. Others have relied on local bank managers willing to take 
chances and bring them on as clients, or even offer tips on how to 
choose nondescript company names.

But the financial institutions eventually shut down many of these 
accounts after managers conclude the businesses are too much of a 
risk. It is not unusual for a legitimate marijuana business to go 
through a half-dozen bank accounts in a few years. While they are 
active, however, these accounts may have informal restrictions placed 
on them  some self-imposed  so they do not draw the scrutiny of 
bankers who may file suspicious-activity reports or would be required 
to report deposits over $10,000 in cash. The account holders may make 
only small deposits, and only at night and at certain branches. 
Kunkel of Seattle has such an account.

At the largest credit union in Washington state, BECU, about 20 
accounts have been shut down in the last three years after it was 
discovered they were for businesses in the legal marijuana trade, 
Todd Pietzsch, a spokesman for the credit union, said.

Kristi Kelly, 36, who owns two dispensaries and several marijuana 
growing operations in the Denver area, said six bank accounts of hers 
had been canceled in the last 18 months. "Opening the account is not 
necessarily the problem," she said. "Our cash deposit levels flag a 
bank's compliance division."

Because legal marijuana operations, for the most part, cannot get 
bank loans, these small businesses have to rely on short-term loans 
from individuals, usually with higher interest rates.

To help, High Times magazine is starting a private equity fund to 
invest in marijuana businesses. But many investors may feel uneasy 
about marijuana businesses that do not have bank accounts. And 
without bank references, entrepreneurs say, it is much tougher to get 
lines of credit from vendors.

Leaders in the marijuana trade point out that giving accounts to 
businesses would allow for more transparency and meticulous 
regulation and would help ensure that jurisdictions receive the taxes 
they are entitled to.

Marijuana entrepreneurs and banks both would like clear guidelines 
from the government on how financial institutions can serve the 
industry. On Friday, six members of Colorado's congressional 
delegation sent a letter to the Treasury and the Justice Department 
requesting that they "expedite" that guidance.

Richard Riese, senior vice president for regulatory compliance at the 
American Bankers Association, said banks wanted clear and 
comprehensive. guidelines on how to do business with the legal 
marijuana industry.

Riese said, for instance, that banks would want to know that they 
were not "aiding and abetting" a criminal enterprise if they provided 
services to marijuana businesses. "Banks will need a lot of detail 
from regulators to get the satisfaction and comfort they are looking 
for," he said.
- ---
MAP posted-by: Jay Bergstrom