Marijuana distributors want banks, not cash

DENVER — Frustrated by the cash-heavy aspect of its new marijuana industry, Colorado is trying a long-shot bid to create the world’s first financial system devoted to the pot business.

But Colorado’s plan to move the weed industry away from dank-smelling cash to easily auditable banking accounts is a Hail Mary pass that won’t work, industry and regulatory officials agree.

“It’s definitely creative, but I don’t know whether it’s a solution or just a statement,” said Toni Fox, owner of 3D Cannabis Center in Denver.

Here’s the plan approved by state lawmakers Wednesday — state-licensed pot growers and sellers would pool their cash into uninsured financial cooperatives. The cooperatives would then ask the U.S. Federal Reserve System to let them access so-called “merchant services,” a broad category that includes accepting credit cards and being able to write checks.

The Federal Reserve had no immediate response Thursday to Colorado’s cooperative plan.

The cooperative stratagem is a response to marijuana guidance issued in February by the U.S. Treasury Department.

Marijuana shops in Colorado and elsewhere have been clamoring for years for access to traditional banks, complaining of dousing cash in air freshener to try to dupe banks. Others pile cash in self-storage units or safety deposit boxes, requiring frequent trips to exchange the cash for money orders in order to pay employees and utility bills.

The February Treasury guidance, though, was met with a shrug by many banks. Banks generally considered the elaborate reporting requirements associated with taking marijuana customers too onerous to bother with. Instead, Colorado authorities hope the Federal Reserve will allow new marijuana co-ops to access merchant services if the co-ops agree to bear all the cost of complying with the marijuana banking guidance, as well as assuming all the risk.

It sounds like a long shot even to marijuana industry workers.

“I don’t see it,” said Shawn Coleman, a Denver-based lobbyist who represents marijuana retailers. “The administration has gone as far as they possibly could to help the marijuana industry without an act of Congress.”

And despite complaints from banking groups and pot shops about Treasury’s pot guidance, there are signs the guidelines are working for some. And a handful of small credit unions in Colorado and Washington state do serve marijuana clients, though many won’t talk publicly about it.

“There are banks who are doing this, but we don’t know who these banks are or who they are serving,” Coleman said.

Asked whether he’d advise his clients to consider an uninsured financial co-op as an alternative to constantly skipping around from bank to bank, Coleman didn’t hesitate. “Absolutely not,” he said.

For example, Fox’s Denver dispensary has never lost an account with the bank she’s had since she owned a landscaping company before Colorado’s retail medical marijuana industry took off in 2009. She just won’t tell a reporter which bank it is.

Her bank didn’t pull her account after the February guidance, but Fox said her bank did hike her fees. She simply pays it.

“We would pay whatever it took to have financial security,” Fox said.

The architects of Colorado’s marijuana banking gambit concede that it’s far from certain whether cannabis-specific cooperatives would ever get off the ground. But they say the bill’s passage should at least signal to banks and federal regulators that the marijuana industry is willing to go to great lengths for consistent banking services.

“I hope at least in the short term this will show the banks that this is a legitimate business,” said Brian Vicente, a Denver attorney who advises marijuana clients in regulation and banking compliance.

Washington state is closely watching Colorado’s new banking plan, said Scott Jarvis, director of Washington’s Department of Financial Institutions. But the big question remains that it requires action by the Federal Reserve: “That’s been the mystery all along. If it’s allowed, it could all happen.”

A few banks or credit unions in Washington plan to do business with licensed marijuana growers and processors, he said, but it will be extremely difficult for pot shops to obtain even basic checking accounts.

That’s because institutions believe it’s harder to monitor retailers in compliance with Treasury Department guidelines than it is to monitor processors and growers.

“If the feds say you can have access to the federal system, that’s another mechanism.”

Washington’s Legislature doesn’t return to business until January, so no banking action is imminent here.

“In the meantime, we’ll see how the market goes and how many institutions are willing to dip their toe in the water,” Jarvis said.

Colorado’s banking plan awaits the signature of Democratic Gov. John Hickenlooper, who is expected to sign it. There’s no timeframe for marijuana shops to start forming cooperatives, or for the Federal Reserve to decide whether to allow them to take credit cards and write checks.

The pot banking plan originally expired in 2017, but Colorado lawmakers amended the bill to remove the expiration date.

“It may take that long for this to get off the ground,” joked Sen. Pat Steadman, one of the bill’s sponsors.

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