Are the feds stoned on Marijuana banking?
A couple months ago the federal government published a memo “giving banks the green light” to bank legal marijuana businesses (just look at the title of the article in the Washington Post: http://www.washingtonpost.com/business/economy/obama-administration-clears-banks-to-accept-funds-from-legal-marijuana-dealers/2014/02/14/55127b04-9599-11e3-9616-d367fa6ea99b_story.html ) Soon after; the industry erupted in cheers. Many owners were looking forward to having a normal banking relationship (Since Marijuana is a federally controlled substance, banks knowingly will not accept deposits related to marijuana, some do turn the other way, but the majority of banks are not interested in this type of business).
Unfortunately the celebration, as suspected was short lived. Almost immediately after the announcement came out by the feds, the president of the Colorado bankers association says: “is little more than a misguided effort to “change water into wine,” the state’s largest banking association says. The only real solution is an act of Congress, which isn’t likely in the near future, though needed,” Colorado Bankers Association president and CEO Don Childears writes in an opinion piece submitted to The Denver Post. Banker group says only Congress can open their doors to pot businesses – The Denver Post http://www.denverpost.com/business/ci_25088814/banker-group-says-only-congress-can-open-their#ixzz2vDX9M0AK
In my opinion, the fed memo did nothing more than highlight the risks banks are taking by banking the marijuana industry. It appears the brilliant minds crafting this wonderful memo might have been smoking to much marijuana (or eating too many pot brownies). The feds guidance basically said that banks need to make sure their clients are licensed and abiding by the laws set forth by the state. This statement alone is enough to give bankers heartburn. The fed is basically telling a bank to patrol their clients for compliance. This shifts allot of risks now onto the bank. Can you imagine the federal government putting out a memo saying, you can bank a liquor store but you have to make sure they are properly licensed…. when did the bank get into the business of enforcing laws that state regulators are in charge of (and regulating).
There was a recent article in the Denver post where many owners of marijuana stores feel it is a strategic advantage to have a bank account. This strikes me as crazy and ironic that is interpreted as an advantage to use the banking system. The state is collecting deposits of almost 184 million in taxes (which is fine under federal law), but a local bank is unable to accept deposits?
This leads me to the next item: why should you (or anyone) care what happens to marijuana businesses? I’m a resident of Colorado and I am deeply concerned (it doesn’t matter what your political affiliation is or whether you support or hate legal marijuana). It all boils down to dollars and sense. I’ve seen tax predictions in Colorado from 100-184million in tax revenue. Currently much of the industry operates in cash. I would be willing to bet a million bucks not all the revenue is being reported in a cash business (how many waiters who get paid in cash report all their tip income?) The heavy reliance on cash also can enable less scrupulous activity (money laundering, drug cartels, etc…)Forcing legitimate businesses into the cash arena is bad public policy. Below is a compilation of some recent articles that you might find interesting. It will be fascinating to see how this plays out as more states legalize both recreational and medical marijuana. Hopefully the feds will not smoke so much when they craft their next guidance memo for banks.
- Revenue article: http://www.bloomberg.com/news/2014-02-23/colorado-s-experience-with-legal-pot-has-u-s-governors-curious.html
- Banks not buying fed memo: http://www.denverpost.com/business/ci_25088814/banker-group-says-only-congress-can-open-their
- Banking is closely guarded secret: http://www.denverpost.com/marijuana/ci_25244700/where-colorado-pot-shops-bank-is-closely-guarded