With marijuana poised to become big business in Colorado, some Roaring Fork Valley banks say they’d like to serve the legal marijuana industry. Yet they fear the federal government, which considers it money laundering every time a pot grower makes a bank deposit.
“At one point in time we had a few accounts [with pot businesses], back when they first opened up,” said Glen Jammaron, president of Alpine Bank in Glenwood Springs.
That changed, Jammaron said, in September of 2011, when he got a newsletter from the Federal Deposit Insurance Corporation (FDIC), the agency that insures all U.S. bank deposits.
“We heard from them that anyone doing this would be considered to be money laundering,” he said. “At that point in time, our only real course of action was to ask [the marijuana businesses] to close their accounts.”
Because marijuana is illegal under federal law, it’s also illegal for banks to handle money generated from its sale. Yet a federal review of banking rules is now underway at the U.S. Justice Department, and the law could change in the coming months.
At the urging of officials from Colorado and Washington State, Deputy Attorney General James Cole announced on Tuesday that he was launching an inquiry into ways to make banking services more available to the legal marijuana industry in those states.
Colorado legalized recreational marijuana cultivation, use and sale with the passage of Amendment 64 last November.
At a Senate Judiciary Committee hearing in Washington D.C., Cole argued that denying banking services to marijuana businesses makes them attractive targets for crime and robbery by forcing them to operate on a cash-only basis.
The point hits home in the Roaring Fork Valley, where burglars have targeted medical marijuana dispensaries in recent years. On Aug. 29, a medical marijuana dispensary was robbed in the Holland Hills area near Basalt, and two suspects took between $600 and $800 from a glass donation jar in which the owners of Aspen Roaring Fork Wellness had been collecting money to purchase a wheelchair for a disabled medical marijuana patient. According to police reports, they also stole a range of medical marijuana products from the store. The two suspects have not been identified, and they remain at large, according to the Pitkin County Sheriff’s office.
Clearly, pot businesses need a place to put their money, and several local banks say they’ve consulted extensively with lawyers to see if they could legally serve the industry.
“We’ve had employees here who have had roommates and friends in the business, and we’ve made the extra effort to figure out a way to do it,” said Mike Taets, president of Timberline Bank in Aspen.
“But the FDIC could threaten to revoke our insurance and if you get caught with this, they will prosecute you under federal money laundering laws,” he said. “It’s serious.”
There are some gray areas in the law, according to Jammaron. It’s unclear, for instance, whether a bank can finance a commercial building where one of the tenants is a marijuana business.
“If you owned a commercial building and one of these guys is a tenant, that could be a problem, too,” he said.
Pot entrepreneurs desperate for bank accounts
Many marijuana business owners, forced for years to operate on a cash-only basis or funnel their revenue through personal accounts or other businesses, say they’re longing for the security and accountability that banking services provide.
“Being forced into a cash scenario means that everyone has to misrepresent where their cash is coming from,” said Jason Mitchell, manager of Green Medicine Wellness, a dispensary in Glenwood Springs. “I can’t speak personally, because I’m not a business owner, but it appears to me that people have to do that.”
Keeping so much cash on hand also creates serious security concerns for dispensary owners.
“We’ve got redundant security and the cop shop is a block away, and we’re on the third floor of our building with alarm systems,” said James Leonard, co-owner of the Doctor’s Garden dispensary in Carbondale.
“I still keep a can of Raid under the counter,” he joked.
Leonard said his business had tried to apply for credit cards and bank accounts several times, but had been dropped once the companies found out he was in the pot industry.
“We are waiting for the banks to loosen up,” he said.
Leonard said he’s also hoping for changes in federal tax law to accompany any banking reforms now in the works. Marijuana businesses, he said, aren’t currently allowed to deduct things like capital and business expenses from their federal tax burden, the way most businesses can.
“We pay federal taxes, and we pay way more than we should because we can’t write things off,” he said.
Many pot businesses, Leonard said, succeed in opening bank accounts by misleading the financial institution about the industry they’re in. If a check bounces and the bank investigates, though, they could have their assets frozen.
“Some people try to portray their business as something else, but we’re not going that route,” he said. “It’s too risky.”
Pot banking could help the government
get its money’s worth
News of the federal banking rule review comes as local jurisdictions around Colorado are working to finalize their recreational marijuana rules before the state starts accepting business applications on Oct. 1.
A widespread concern during the rule-making process has been that state and local governments won’t have adequate funding — obtained through taxes and licensing fees — to enforce their own rules.
Improving pot businesses’ access to banks could help address the problem, according to Mitchell. Banking, he said, would mean better record keeping, which would make accounting and auditing easier for the government agencies overseeing the marijuana industry. That, in turn, would help the agencies insure that they get all the cash they’re legally entitled to.
“I think it’s going to solve itself here in the next six months,” said Mitchell. “If the government wants easier access to the cash, they’ll have to fix that speed bump.”
In an Aug. 29 memo announcing that the federal government would not interfere with marijuana legalization efforts in Colorado and Washington, Cole wrote that pot legalization and regulation in those states could replace “an illicit marijuana trade that funds criminal enterprises with a tightly regulated market in which revenues are tracked and accounted for.”
His recent foray into banking restrictions for pot businesses seems intended to help advance that vision.