Pubdate: Sun, 28 Dec 2014
Source: Denver Post (CO)
Copyright: 2014 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: David Migoya

MARIJUANA BUSINESS OWNERS HAVE NO DOCK TO BANK CASH

The year began with one of the nation's biggest ATM sponsors refusing 
to allow its machines to be in businesses with ties to the marijuana 
trade, and it ends with the first credit union of its kind at the 
precipice of opening its doors.

For the recreational marijuana trade, the roads into and out of 2014 
are a study in contrasts, where the initial lockdown against access 
to banking services appears to be cracking, even as the drug remains 
illegal under federal law.

The industry's biggest hinderance to calling the first year of legal 
sales in Colorado a huge financial success-more than $300 million in 
sales in recreational sales alone - has been the absence of a place 
to put all that cash.

A lack of banking-from deposits to the simple act of writing a check 
to pay an employee-was the biggest challenge for every pot business.

"It was apparent that a cash-heavy marijuana industry would be an 
invitation to corruption and criminal activity, so one of our 
priorities in implementing Amendment 64 was securing traditional 
banking and financial services for legitimate marijuana businesses," 
Gov. John Hickenlooper said in a statement to The Denver Post.

A common industry frustration was that while banks refused 
marijuana-derived deposits, they happily accepted those same dollars 
as deposits from state agencies that collected taxes from those businesses.

"One of the main things we are happiest to spend marijuana money on 
is solving the banking issue," said Mike Elliott, executive director 
of the Marijuana Industry Group. "Not all of them have been credible 
solutions. And the roadblocks have been many."

Then, Pueblo Bank & Trust, one of the biggest sponsors of privately 
owned ATMs, told providers it would not allow them to place machines 
near or in marijuana-selling businesses.

Suddenly customers of the cash only businesses had no ready access to cash.

"While there has been a slew of issues, problems and purported 
solutions to the challenge of providing banking services to marijuana 
businesses in Colorado, little has changed," the Colorado Bankers 
Association said in a statement issued to The Post. "Dealing with the 
proceeds from the sale of marijuana remains federally illegal."

Efforts began for a way to pull banks and pot together without having 
to worry about federal regulators looming with new rules to stymie 
the relationship.

Directives from the Financial Crimes Enforcement Network division of 
the Department of the Treasury issued on Valentine's Day were seen by 
some as a green light to banking. Bankers, however, saw it as a very 
dim yellow one, and most balked at rules requiring even more 
paperwork to identify marijuana-tainted money.

"Before the Valentine's Day memo, many of the businesses had bank 
accounts in a don't-ask-don't tell, unstable environment," Elliott 
said. "Then it changed. Suddenly, they saw banks that had been 
willfully blind were suddenly auditing themselves, unable to pretend 
anymore. In one moment, things went from bad to worse."

Colorado bankers became even warier.

"It is all but impossible for any institution to comply with the 
'Know your customer's customer' burden outlined in the FinCEN and 
Department of Justice memos issued in February, which include 
ensuring marijuana isn't used on public land, resold, transported 
outside of Colorado, provided to minors or other factors," the 
bankers association said in its statement.

Then, in May, Colorado legislators came up with House Bill 1398, an 
11th-hour proposal to create local financial-service cooperatives - 
the business equivalent of a credit union-for legal marijuana shops. 
Although not a solution, it offered a ray of hope.

Put simply, it would allow shop owners to band together to form a 
business that would handle the critical financial services they 
needed to operate. It offered a place to put all that cash that no 
one but the government seemed to want to handle. More importantly, it 
was a way to pay their bills in a manner that wasn't a suitcase 
stuffed with twenties.

The hitch, though, was a requirement that the Federal Reserve System 
approve any co-op's access to the nation's banking system. Without 
it, the idea would have no chance of success.

"No financial institution can transact business unless they have 
access to the Federal Reserve System," said Chris Myklebust, the 
state's commissioner of financial services onto whose lap the co-op 
rule-making and oversight landed. "While it is a viable option, all 
depositors in Colorado deserve nothing less than the safety and 
confidence that federal deposit insurance provides."

That idea slowed, too, with no takers on filing applications.

Problems acquiring bank accounts soon spread to those merely 
associated to the industry. Landowners who leased property to 
marijuana businesses had mortgages canceled, and others found no 
offers for refinancing.

Then, pot businesses were being penalized by the Internal Revenue 
Service for paying withholding taxes in cash when rules dictated they 
be negotiated electronically. Without a bank account, the businesses 
were hostage.

In late November, word emerged of a new credit union forming, the 
result of an overlooked section of state law that allowed it to 
operate pending federal approvals for insurance.

With a state charter in hand, and a virtual guarantee on obtaining 
insurance coverage-whether by a federal agency or privately- The 
Fourth Corner Credit Union appears headed to a grand opening in 
January. It awaits approval of a master account with the Federal Reserve.

"I can't look back on this year without getting excited about the 
future. We're going to get a solution. Marijuana will be banked," 
Myklebust said. "The industry ultimately will be served by existing 
institutions or by something new."

The banking-and-marijuana idea appears to be spreading to the 
mainstream, although bankers remain guarded about talking publicly. 
Most won't, citing federal regulators who prefer a closeted, quieter optimism.

"We've seen more incremental progress in terms of individual 
institutions beginning to open up their doors to cannabis businesses, 
if still very quietly, as well as state level efforts to find 
workable solutions in lieu of federal action," said Taylor West, 
deputy director of the National Cannabis Industry Association in 
Washington, D.C. "What we haven't yet seen is a full-scale, 
sustainable solution from Congress to end this crisis once and for all."

Congress has made attempts, with most efforts to open up the banking 
logjam failing to move farther than a committee docket.

"We've done a lot to get marijuana businesses the banking services 
they need, but in the long run, to ensure the continued strength and 
safety of our regulatory system, we hope Congress will act to allow 
for traditional banks to provide traditional services to marijuana 
businesses without fear of legal action," Hickenlooper said.

Outwardly, bankers aren't as optimistic. "Recent reports of a 
marijuana credit union are inciting hope in the marijuana industry, 
but we are unsure if it will actually take root," the bankers 
association said. "Access to the payment system is a key challenge 
among many other issues. We are not convinced this will occur soon."
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MAP posted-by: Jay Bergstrom