Pubdate: Tue, 27 Jan 2015
Source: Denver Post (CO)
Copyright: 2015 The Denver Post Corp
Contact:  http://www.denverpost.com/
Details: http://www.mapinc.org/media/122
Author: David Migoya

MBANK DROPS COLO. A WEEK AFTER OPENING POT ACCOUNTS

The Oregon community bank that a week ago openly welcomed Colorado 
marijuana industry customers has changed its mind, publicly saying it 
doesn't have the infrastructure to handle the overwhelming response 
for service.

But people familiar with the move say the retreat was pressed by 
federal banking regulators who stepped in late last week to tell 
MBank executives that crossing several states to work with an 
industry that remains illegal under federal law was simply too risky.

"Following national press, the volume of inquiries in Oregon, 
Washington and Colorado has been so overwhelming that we don't 
currently have the infrastructure to adequately support all these 
customers," MBank CEO Jef Baker said Monday. "Colorado is the 
farthest from our market area and the most difficult to provide the 
quality customer service to."

There are nearly 2,200 pot retail, manufacturing and grow businesses 
in Colorado, according to state licensing data.

The bank will continue to serve legal marijuana businesses in Oregon 
and Washington, Baker said.

Industry insiders said the pullback was not unexpected.

"We've become accustomed to our banking solutions not actually 
working out," said Michael Elliott, executive director of the 
Marijuana Industry Group. "After they got all that press, I was 
wondering if they'd get increased scrutiny and pressure as a 
result-just like all the other banks have."

Part of the issue, Baker said, was MBank's lack of a Colorado branch, 
which would require approval from state banking authorities. It did 
not need approval to accept deposits from Colorado businesses.

Without a branch, cash deposits-millions of dollars that often must 
be treated with cleaners such as Febreze to remove the pungent 
marijuana smell - would have to be made at a Federal Reserve Bank, 
such as the one located in downtown Denver. From there, deposits 
would be electronically credited to MBank's accounts, then to its 
marijuana- business depositors.

Founded in 1995, the $ 165 million bank has three Oregon locations in 
and around Portland. It nearly closed in 2009 following a string of 
problems that ranged from inadequate board management to a balance 
sheet weighed down by toxic and poorly performing loans.

Baker said the five Colorado-based marijuana business accounts that 
were opened will most likely be closed. "I'm not 100 percent on that, 
but we're reviewing it."

Another 60 inquiries from Colorado pot shop owners will be shelved, he said.

When MBank went public with its desire to bank the marijuana sector 
last week, its brazenness raised industry eyebrows. Banking 
regulators, such as the Federal Deposit Insurance Corporation, which 
oversees MBank, have frowned on institutions that are overt about 
working with legal cannabis businesses.

Colorado's legal pot businesses have long lamented that their 
accounts are closed as soon as where they are banking becomes public.

"This is exactly the reason why the marijuana industry cannot say who 
they have a bank account with, and why the banks don't want it 
public," Elliott said.

Baker sidestepped questions about whether it was the FDIC- the agency 
he said offered its "tacit approval" to the idea only a week ago-that 
pushed MBank out of Colorado.

"We are regulated by the government, and the expectation is that we 
run our bank in a safe and sound manner. In the event we don't, we 
face severe repercussions from our regulators," Baker said. 
"Certainly regulators influence our decisions, but ultimately it is our call."

An FDIC spokesman said the agency does not comment about ongoing bank 
operations.

Others familiar with the outcome said the FDIC frowned at the public 
nature of MBank's move, making it unclear whether the plan would have 
met approval had it not been so well-publicized.

"The regulators have the gun and all the bullets," said one banking 
insider who is familiar with the FDIC and its methods. "Any of us who 
have survived ( the financial crisis) knows exactly how this works. 
If we're not team players, our life becomes miserable."

Colorado has had several efforts of banking in the marijuana industry 
go awry, the most recent a long delay in the opening of the Fourth 
Corner Credit Union. The world's first credit union created 
specifically for the pot industry had expected to open at the new 
year, but it has not yet been granted a master account by the Federal 
Reserve Bank in Kansas City.

A move last year by the Colorado legislature set the stage for a 
banking cooperative similar to a credit union but has made no 
progress despite numerous discussions. That's because it, too, would 
require the same master account necessary to access the nation's money system.

Colorado Springs State Bank, the last Colorado bank to openly work 
with the marijuana industry, closed about 300 accounts in late 2011 
amid concerns of working with companies that violate federal law.

Baker said he'll likely revisit the Colorado plan, but it might take some time.

"The position of state and federal regulators is that they do not 
object to banking services being provided to the cannabis industry," 
he said. "However, they absolutely expect the development of strong 
programs. Time and experience will allow programs to become stronger."
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MAP posted-by: Jay Bergstrom