Chris Cook, an employee at 3D Cannabis Center in Denver, fills out a board with the amount of taxes that will be added to recreational marijuana. (RJ Sangosti, The Denver Post)

State-owned bank won’t work for marijuana cash

Efforts by Washington state legislators to create a state-owned bank that would cater to the newly legal marijuana industry won’t work in Colorado — or in Washington, for that matter — industry and legal experts say.

That’s because federal law is specific in its prohibition against commercial banks from accepting deposits they suspect are the profits of illegal activity. And the marijuana trade in federal legal terms is still illegal.

Nevertheless, Washington state Sen. Bob Hasegawa of Seattle is pressing forward with a proposal to create a state-owned bank, an effort he has pursued since 2010 as a state representative.

His push, though, is only of late to accommodate the legalized marijuana industry that voters approved in 2012, the same as in Colorado. It had been to handle state funds as a way of financing construction of public infrastructure at better interest rates.

Armed with the notion that marijuana funds — presumed to be a $2 billion annual industry there — could be used as the mechanism to pay for the projects, Hasegawa is pursuing the idea again.

It has met with some backing of business leaders, though the banking sector says it’s unlikely to pass and the state treasurer opposes it.

The critical hurdle wouldn’t be a state-owned bank accepting cash deposits from marijuana businesses. It’s accessing any of the federally regulated or controlled processes for negotiating commerce after that.

Checks, debit cards, credit cards, wire transfers — all are negotiated in a system that’s governed by federal regulations and rules.

And whether in Washington or Colorado, many say the idea simply won’t work as long as marijuana is involved.

“In short, federal law says any entity that holds deposits from another person, transfers funds between parties as in checks, debit cards, wire transfers, or otherwise is connected to the payments system — the movement of money from one financial entity to another party — must abide by federal law,” said Don Childears, president and CEO of the Colorado Bankers Association. “That means you can’t bank marijuana businesses now per federal law. Without the payment system, such an entity would amount to a big vault — cash in, cash out.”

Essentially, banks would be a safe-deposit-box operation for a cash business that couldn’t pay employees with checks or even cash-loaded cards.

The federal government only recently indicated it would offer some guidance on what banks could do, though that isn’t to come until at least mid-spring, industry insiders say.

And even that won’t be as definitive a guidance as banks would like. Rather than a position that will give banks the green light to offer service to marijuana businesses, the expectation is more of a yellow light, where the government is likely to say banks won’t have to file suspicious-activity reports any time a known marijuana business makes a deposit.

“I don’t know how it regulates or taxes a business where it can’t follow the money,” Childears said of a cash-only, state-owned bank. “It can’t do that in a cash-only business.”

Industry backers say they’re convinced the government is merely taking a soft stand — a footprint in sand rather than in cement — and should be called on its bluff.

“Absent federal action, Colorado and Washington have a responsibility to explore every option in the service of public safety, even if those options force the federal government to act,” said Betty Aldworth, deputy director of the National Cannabis Industry Association in Washington, D.C.

“Let’s not forget that we’re in this crisis because the people have chosen to buck federal policy on marijuana itself,” she said.

That could put deposits of a state-owned bank at risk — presumably including taxpayer funds from state agencies — should the federal government decide to prove its point.

“I can’t see any bank, much less a state-owned one, taking that kind of a risk at any level,” said Fred Joseph, Colorado’s commissioner of banking. “The critical juncture here is in dealing with other banks, a problem that hits right into the federal regulations.”

A state-owned bank would have to “do something with the cash” deposited by marijuana businesses.

“Processing of checks, such basic things as an ATM machine, electronic funds transfers, all of that must clear the corresponding federal reserve system,” Joseph said.

Hasegawa in Washington likes to point to the Bank of North Dakota as proof that a state-owned bank can be successful. It can and has been.

Just not with marijuana involved.

David Migoya: 303-954-1506, or

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