Pubdate: Sun, 03 Apr 2016
Source: Palm Beach Post, The (FL)
Copyright: 2016 The Palm Beach Post
Author: Sophie Quinton, (TNS)


Feds Don't Allow Banks to Handle Marijuana Money.

DENVER - Tim Cullen's marijuana business brought in millions of 
dollars last year, but he's had a hard time finding a bank to take 
the money. He's cycled through 14 checking accounts in six years. 
Recently, he said, a bank closed all his personal accounts, including 
college savings for his 3-year-old daughter.

Federal law prohibits banks and credit unions from taking marijuana 
money. So in Colorado, everyone involved with the state's legal 
cannabis industry has a banking problem. Businesses can't get loans, 
customers have to pay in cash, and state tax collectors are 
processing bags of bills.

Some community financial institutions have become more open to 
serving the cannabis industry since the U.S. Treasury and Justice 
departments said they won't go after institutions that keep a close 
eye on their clients and report suspected wrongdoing, such as funding 
gang activity.

But the big banks refuse to touch the industry, and banking 
challenges are only going to increase as legal marijuana expands. 
Nationwide, sales hit $5.4 billion in 2015, according to The ArcView 
Group, an analysis and investment firm that specializes in the legal 
cannabis industry.

Twenty-three states allow medical use of marijuana and four also 
allow recreational use. Voters in Arizona, California, Massachusetts 
and Nevada may legalize adult use this fall, and Vermont's Senate 
recently approved a bill that would do so.

States are looking to Colorado - which legalized medical marijuana in 
2000, and adult use in 2012 - for answers to the banking problem, but 
the state has few to offer. "We don't truly think we'll see a 
solution unless there's a federal solution," said Andrew Freedman, 
Colorado's director of marijuana coordination.

Cullen has been an unofficial spokesman for Colorado's cannabis 
industry since he bumped into a CNN camera crew while picking up one 
of the state's first retail marijuana licenses, he said. It helps 
that he's a clean-cut former high school biology teacher who designed 
his stores with his mom in mind.

"We wanted to look like Restoration Hardware," he said while walking 
through the main Denver location of Colorado Harvest Company, the 
marijuana growing and retail business he founded in 2009 and co-owns. 
That means wood paneling, edibles laid out in glass cases like 
chocolates, and a scent in the air that's more reminiscent of a day 
spa than a college dorm.

But even Cullen's squeaky-clean operation makes banks uneasy. The 
company's current account, with a credit union, covers only basic 
services such as direct deposit for the company's 70-odd employees 
and sending tax payments to the state, Cullen said.

An ATM sits in the corner of each of his three stores, because hi s 
business can't process credit or debit card payments (credit card 
companies, like banks, may refuse to touch marijuana money). Every 
day an armored car swings by to pick up the day's revenue - all cash 
- - and takes it away to be deposited.

About 40 percent of Colorado cannabis businesses lack bank accounts 
altogether, according to the office of U.S. Rep. Ed Perlmutter, a 
Democrat who has pushed to improve banking for the cannabis industry. 
State officials would not comment on that number.

Freedman said a growing number of marijuana businesses seem to be 
obtaining bank accounts, judging by the declining share of tax 
revenue that businesses are paying in cash. But the services they're 
able to access are limited and costly - "which means a lot of people 
prefer to keep as much as they can in cash," he said.

All the cash floating around makes cannabis businesses targets for 
crime, Freedman said. Since Colorado fully legalized marijuana in 
January 2014, the Denver Police Department has logged more than 200 
burglaries at marijuana businesses.

The loose cash also makes it harder for the state to track 
businesses' finances to make sure they are obeying the law and paying 
their taxes. And to get a bank account, some businesses will funnel 
their cash through a shell company, Cullen said. "It starts to look a 
lot like money laundering."

As Cullen's experience shows, accounts can also be tenuous. 
Sometimes, a financial institution will change its mind about taking 
marijuana money. Or it might learn of a client's ties to the 
marijuana industry. Mark Goldfogel, a consultant, said his bank 
closed accounts he'd held for 14 years after he revealed who his 
marijuana clients were.

Colorado's attempts to solve the problem have shown other states how 
few options they have.

In May 2014, lawmakers authorized a new class of financial 
institution called a cannabis credit co-operative, which wouldn't 
have to acquire and maintain deposit insurance. But no such 
institutions have been formed so far, partly because the Federal 
Reserve isn't likely to approve them.

Later that year, lawmakers authorized a credit union for the cannabis 
industry. But the Fed denied the credit union access to a master 
account, which is necessary for transferring money, and the National 
Credit Union Administration refused to insure its deposits.

"Even transporting or transmitting funds known to have been derived 
from the distribution of marijuana is illegal," the Federal Reserve 
Bank of Kansas City said during a court case the credit union brought 
and recently lost.

Without a master account, the credit union can't fully function, said 
Mike Elliott, head of the Marijuana Industry Group, a trade 
association in Colorado. "It can be a vault. But we don't need a 
vault," he said.

Officials in other states that allow marijuana have run up against 
the same barriers. For example, tax officials in California have 
floated the idea of a state-run bank, as have officials in Alaska.

But such an institution would still have to use federal wiring 
services, said George Runner of the California State Board of Equalization.

California already has trouble collecting taxes on medical marijuana, 
Runner said. "We've had folks come in with hundreds of thousands of 
dollars" in cash to make payments. Other than increasing security at 
tax collection offices, there's not much his office can do about it.

The cannabis industry's banking problems would vanish if Congress 
were to take marijuana off the federal government's list of most 
dangerous drugs. Last November, U.S. Sen. Bernie Sanders, I-Vt., who 
is running for the Democratic presidential nomination, became the 
latest lawmaker to propose the change.

But that's a remote possibility. Perlmutter has introduced a bill - 
twice - that would take a smaller step, and stop federal regulators 
from penalizing financial institutions for serving the cannabis 
industry. He hasn't been able to get a hearing, let alone move the 
bill out of committee.

Perlmutter and his allies in Congress are now trying to cut off 
funding for federal enforcement actions against banks and credit 
unions that serve cannabis businesses.

The Fed and other regulatory agencies have made it clear that states 
can't create new financial institutions for the cannabis industry. 
But because the Obama administration has indicated that it will look 
the other way when existing institutions serve cannabis clients, 
businesses like Cullen's do have some options.

Vermont's Department of Financial Regulation has researched the 
services available to the state's four medical marijuana dispensaries 
and found some good news. The state's largest credit union serves one 
dispensary and says it would serve more. Although the credit union 
doesn't offer marijuana businesses much more than depository 
accounts, federal regulators confirmed that the accounts are insured.

Vermont state Sen. Joe Benning, a Republican who co-sponsored the 
Senate proposal to legalize marijuana for adult use, said the state's 
financial institutions should be able to handle the cannabis 
industry's expansion - at least initially. "You're not going to have 
to be bringing in wheelbarrows full of cash to make deposits," he said.

In other states, new services have emerged to eliminate cash 
transactions. In Washington and Oregon, an intermediary company 
called PayQwick electronically transfers money between marijuana 
growers, sellers, customers and their financial institutions. 
PayQwick also files all the paperwork the Treasury Department 
requires, taking a burden off banks.

Tax collection offices are doing what they can to manage cash 
collections. Offices in Oregon and Colorado have added security, such 
as safety glass and security cameras; businesses are also hiring 
security guards to help them make deposits safely.

Auditing cash-only cannabis businesses is tough, but not impossible. 
In Colorado, the Department of Revenue relies on the state's system 
for tracking legally grown and sold marijuana plants, Freedman said.

Still, the situation is far from ideal for businesses or for states. 
It's temporary, too; nobody knows how the next president will enforce 
federal marijuana policies.

While Colorado waits for Congress to act, state officials will keep 
meeting with bank and credit union boards and explaining the nuances 
of federal law, Freedman said. That slow, institution-by-institution 
campaign may be states' best hope for getting marijuana money off the streets.

"I think it's going to get better. It certainly couldn't be worse," 
Cullen said. He takes the sunny view that as more states legalize the 
drug, it will become something federal lawmakers will no longer be 
able to ignore.
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MAP posted-by: Jay Bergstrom