Pubdate: Sun, 14 Feb 2016
Source: Sacramento Bee (CA)
Copyright: 2016 The Sacramento Bee
Contact: http://mapinc.org/url/0n4cG7L1
Website: http://www.sacbee.com/
Details: http://www.mapinc.org/media/376
Author: Anita Chabria
Note: Anita Chabria is a freelance writer in Sacramento.

AWASH IN CASH, STATE'S MARIJUANA BUSINESSES CAN'T TAKE IT TO THE BANK

Cannabis industry does not have access to banks, financial services

Federal law prohibits banks from doing business with pot dispensaries

Kimberly's biggest problem is one most would envy: too much cash.

She keeps it in a battered patent leather satchel she calls her 
"bank," separated in manila envelopes, each stapled three times 
across the top. Anita Chabria

Recently, this kitty totaled about $96,000 for the week - which is 
why she doesn't want her last named used. She's scared, with "fears 
coming from every direction," she says.

Kimberly runs a nonprofit medical marijuana dispensary, and like the 
rest of the industry, she can't use a bank. Her business is legal by 
state standards, but it's still a criminal enterprise to the federal 
government.

Banks won't do business with her. Nor will security companies, 
armored-car companies, insurance brokers, credit card vendors or any 
of the usual providers of protection that the rest of society has. 
She even has trouble buying money orders.

So when Kimberly or other dispensaries want to, say, pay their state 
sales taxes, they have to do it in cash. Two of Kimberly's envelopes 
totaling more than $30,000  were headed to the Board of Equalization 
on the day I met her, a trip she makes herself rather than put a 
co-worker at risk.

Banking is a long-running issue for the cannabis industry, and even 
states that have legalized recreational uses don't have an answer. In 
2014, the Department of the Treasury and other regulators issued 
guidelines that supposedly outlined how banks could legally provide 
accounts to marijuana-related businesses, but the upshot was to do it 
at the peril of being implicated in money laundering.

It was a "loosey-goosey response" that said there are no plans for 
now to prosecute bankers, but no promises for the future, says 
Wharton professor Peter Conti-Brown, who tracks the issue. Banks that 
do open accounts for marijuana-related businesses are required to 
follow onerous guidelines and make "suspicious activity reports" 
about their clients, potentially inviting investigation.

So the vast majority of banks don't. It's "a risk they can't take," 
says George Runner, the vice chair of the California Board of 
Equalization, which collects sales and use taxes for the state.

Colorado thought it had figured out a financial solution with a 
startup called the Fourth Corner Credit Union. That nascent 
institution was being watched as a potential model for other places 
after being granted a state charter last year.

But the Federal Reserve Bank refused to give it a master account 
which Fourth Corner needed to do any kind of interstate banking 
including electronic transfers, effectively shutting it down before 
it opened. Fourth Corner sued, but a federal judge last month ruled 
against it, saying courts can't "issue an order that would facilitate 
criminal activity."

But that decision also referenced the obvious elephant in the vault, 
that the banking situation for the marijuana industry is "untenable." 
The sophistic position of the federal government is creating an 
absurd and dangerous situation that puts people at real risk.

Cash is a magnet for crime  one of the recent escaped convicts from 
Southern California was awaiting trial for kidnapping and torturing a 
dispensary owner whom he believed had buried large amounts of money 
in the desert.

That's just one example, but it's the kind of horrific scenario 
that's an actual threat to Kimberly, and her son. Along with the 
physical danger, those in her industry are "being discriminated 
against, segregated and stereotyped" by being denied access to the 
financial system, she says. She can't get a home loan, and she 
worries child protective services will see her situation as 
problematic. Even health care can be hard to come by.

There's not a lot anyone can do to help short of persuading the feds 
to change their minds, which seems unlikely. President Barack Obama 
recently reiterated his stand that any fixes on marijuana policy need 
to come through the Republican-controlled Congress, which has shown 
little inclination to take up the issue. And while his administration 
has backed off  but not ended  prosecutions of marijuana businesses 
in California, who knows what the next administration will do?

"This one is really just out of our hands," Runner says. "I'm not 
optimistic the feds are going to change."

It's stunning that with a state industry valued at $2.7 billion in 
2015, the largest medical market in the country, there are no 
solutions available. Runner and his colleagues instead are stuck 
settling for workarounds to make the process safer for his agency and 
taxpayers like Kimberly.

The Board of Equalization recently contracted with the CHP for 
officers in their facilities, and it's examining payment options such 
as Bitcoin and self-serve kiosks, or even asking banks to serve as 
delivery points where the BOE could take possession of money in a 
secure setting. So far, none are viable.

Runner says the problem is getting worse with the medical marijuana 
regulations passed last year. Those laws are having the hoped-for 
effect of persuading many growers and sellers to legitimize. That's 
great, but it's more cash trying to find its way into the financial 
system with few legal entry points.

And recreational use is on the 2016 ballot, with the potential to 
bring up to $1 billion in state sales tax annually, all money that 
will have to be carried into BOE offices.

California can't afford to have an industry generating billions of 
paper dollars. As potentially the largest state with legal 
recreational use of marijuana, that kind of cash economy will cause 
trouble. With no digital trail, some won't report money. Others will 
use force to get it. And those trying to legally take part in the 
business will remain outliers.

It's troubling that the federal government is not just putting people 
like Kimberly in danger, but creating an unsafe situation for 
everyone who comes into contact with this burgeoning industry many 
states recognize as legitimate.

A few years ago, the feds may have had a point that Kimberly and her 
colleagues were criminals. Now, California and 22 other states say 
she's not. But no matter how hard she tries to run her business with 
integrity and honesty, to the federal authorities, she remains just 
another drug dealer who deserves to be afraid.
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MAP posted-by: Jay Bergstrom