Pubdate: Thu, 22 Feb 2018
Source: Boston Globe (MA)
Copyright: 2018 Globe Newspaper Company
Author: Dan Adams


Massachusetts should consider creating a state-run bank to serve
recreational marijuana companies, the state's top cannabis official
suggested Wednesday, warning that an all-cash industry would create
security risks and regulatory headaches.

With recreational pot sales scheduled to begin in July, Cannabis
Control Commission chairman Steve Hoffman said no local banks or
credit unions have committed to providing financial services to
recreational marijuana shops and other licensed cannabis operations,
wary they will run afoul of federal restrictions.

"There's a high degree of urgency, so it's something we need to start
talking about," Hoffman said in an interview. "Unfortunately, it's a
real possibility" that the recreational industry won't have access to
any banking services, he said. "We're working as hard as we can to
preempt that, but we can't force any bank or credit union to service
this industry."

Without banks, marijuana businesses would have to deal exclusively in
cash - for sales to customers and between retailers and suppliers, to
meet payroll, and make tax payments to the state. Storing and handling
potentially tens of thousands of dollars could invite robberies, law
enforcement officials warned, and complicate tax collections and
efforts to track the sale of the drug and prevent it from being
diverted to the black market.

"If word gets out on the street that there's large amounts of cash on
hand at these places, someone's going to roll the dice and go in with
weapons," said Chelsea police chief Brian Kyes, vice president of the
Massachusetts Major City Chiefs of Police Association. Hoffman's
suggestion "for some mechanism that would remove the cash," Kyes said,
"would certainly be a positive step."

The shortage of banking services is the latest challenge as
Massachusetts approaches a July 1 deadline to begin sales of legal
pot. The cannabis commission has been sparring with the Baker
administration over the scale of the industry at the outset, with the
governor advocating for a smaller, more controlled rollout and the
commission proposing an expansive range of retail options.

Baker's office was cool to the idea of a government bank Wednesday,
saying it has no plans to create such an entity.

Hoffman said he has not discussed the idea with other state officials,
and acknowledged such an entity would likely need to be authorized by
the Legislature, where some lawmakers remain steadfast opponents of
marijuana despite legalization by voters in 2016.

He said discussions with Massachusetts financial institutions left him
feeling pessimistic, with some executives saying they doubted they
could convince their directors, or members, in the case of credit
unions, to overcome their reservations at a time when US Attorney
General Jeff Sessions has threatened to crack down in states where the
drug is legal.

Currently, Century Bank of Somerville is the only Massachusetts bank
that accepts deposits from the state's medical dispensaries, according
to industry executives.

It's unclear if Century will offer services to recreational pot
companies, and the bank did not return requests for comment. But a
federal budget rider that offers protection to businesses involved in
medical cannabis does not apply to recreational pot.

Even if Century takes the plunge, industry experts doubt one bank can
handle the Massachusetts recreational industry, which is projected to
generate more than $1 billion in sales by 2020. There's also some fear
in the industry the Trump administration will rescind federal banking
protections for cannabis that were put in place under President Obama.

Larger banks, which have federal charters or operate across state
lines, generally refuse to work with marijuana companies for fear of
triggering a crackdown. In their place, a meager patchwork of
state-chartered banks and credit unions have entered the pot business
in other states where the drug is legal.

But pot companies frequently face long waits to open accounts and pay
high fees for even basic services, thanks to a lack of competition and
demanding compliance requirements faced by banks.

Executives at medical dispensaries that are considering entering the
recreational business said they were intrigued by Hoffman's idea;
dealing in cash would be a nightmare, they said, requiring them to
hire security, and complicate basic functions such as paying employees
and settling bills.

"It'd be untenable not to have any banking in Massachusetts -
incredibly inconvenient and risky," said Keith Cooper, chief executive
of the Revolutionary Clinics dispensary in Somerville. "Chairman
Hoffman's suggestion and creativity around trying to create a backstop
is admirable, and I'd support it 100 percent."

However, Kim Napoli, who works for the New England Treatment Access
medical marijuana group, wondered if illicit marijuana operators would
be reluctant to go legitimate and be licensed - a major goal of the
state's legalization law - if they are required to sign up for a
government bank account.

She said the best solution would be to change federal law to allow
more banks to handle marijuana money, increasing competition and
making it easier for states to track pot transactions.

"Ideally, we'd like to operate like anyone else," said Napoli, who
stressed she was not speaking on behalf of her organization. "Take
away the cannabis and it should be business as usual."

An all-cash industry would also be a challenge for the state
Department of Revenue, which has said it expects to collect between
$44 million and $82 million in pot taxes next fiscal year.

Hoffman said his agency is working with revenue officials on a system
where marijuana companies pay taxes in cash at state offices, using
money-counting machines overseen by armed guards.

Other states are also considering government-run marijuana banks,
including California and Ohio, but none has implemented one so far.

Mike Hartman, executive director of the Colorado Department of
Revenue, which oversees that state's recreational marijuana market,
said the shortage of banking services makes it harder to determine if
Colorado pot firms are shipping marijuana to other states or
laundering money.

"It would be a significant benefit to our regulatory infrastructure if
all operators had access to banking, so we could see all the cash
inflows and outflows and validate that they don't have cash coming
into the business that shouldn't be there," Hartman said.

Because that state's constitution prohibits a state-created bank,
Colorado is exploring a more limited financial system to serve pot
companies. Hartman said it would be easier to set up a state-run bank
before marijuana businesses open this summer.

"The concept would be much more effective it was done at the outset of
legalization," Hartman said. "There are logistical challenges of
putting anything in place after the marketplace is up and running."

An earlier version of this story misstated Mike Hartman's position
that Massachusetts should adopt a state-run pot bank.
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