Despite 11th-hour success at pressing Colorado legislators to pass a measure that would allow the marijuana industry to create the world’s first pot-banking cooperative, no one has officially attempted to create one.
Even with the flurry of international publicity that swirled last spring around the groundbreaking effort — one that theoretically would allow pot businesses to band together and form their own banking entity — there has been lukewarm interest in giving it a try without first knowing it’s not a useless effort.
As such, there hasn’t been a formal application to the federal agency that would have to approve one.
But that doesn’t mean nothing’s happening.
“We continue to see some movement, but any specifics and those (who are) involved is confidential,” said Andrew Freedman, Colorado’s director of marijuana coordination and one of the forces behind House Bill 1398, the pot finance co-op measure.
What is happening, according to interviews with several people familiar with the process, is that a consortium of businesspeople connected to the marijuana trade has committed to giving this credit-union-type idea a try, but only if the U.S. Federal Reserve of Kansas City gives them a fair hearing.
For now, the Federal Reserve hasn’t said one way or the other — probably because there hasn’t been a formal application for access to the nation’s financial system.
“It’s a very small game of chicken right now, with neither side wanting to commit too much without having a sense of how it will play out,” said one businessman who’s familiar with the group.
That leaves pot businesses in precisely the same place as before the legislation — unable to acquire banking services without keeping quiet their affiliation to the drug that remains illegal under federal law.
And until someone does apply formally, state regulators tasked with working up the rules that would govern the cooperative are stalled.
“We get questions from interested parties, but no one has applied,” said Chris Myklebust, Colorado’s commissioner of its division of financial services, a part of the Department of Regulatory Agencies. “Rule-making wouldn’t occur until after access to the federal system was granted and an application is approved by me.”
The Federal Reserve said it won’t comment on applications made for access to the financial system, but others familiar with the process said as of now — four months after Gov. John Hickenlooper signed it into law — none has been made.
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Lauded by proponents as a means for the industry and lawmakers to prove they had done all they could to solve a chronic lack-of-banking issue, and panned by critics for being a last-minute political ramrod that was too complex to solve in so short a time, it remains to be seen whether Colorado’s pot-banking bill has proven a waste of time.
“I think because the Federal Reserve would likely never give an OK, it’s proving to be a futile effort,” said Rep. Libby Szabo, R-Arvada, a critic who thought HB 1398 shouldn’t have been a last-minute effort.
“No matter what we do, the federal government still views marijuana as illegal. Period,” she said.
Bill sponsor Sen. Pat Steadman, D-Denver, admitted surprise when told a group of businesspeople was testing the water, if only a little bit.
“That’s better than I had hoped for. I thought it was simply going to be the state to go it alone and convince the Federal Reserve to allow it,” Steadman said. “That suitors are lined up, that’s actually good news.”
The legislation is still scant in details, with a cart-before-the-horse sense about it. A group cannot apply to Myklebust’s office for approval until it has gotten tacit approval from the Federal Reserve board.
And the Federal Reserve doesn’t usually do anything tacitly. But it also can’t approve access to the financial system without a formal application, and only a real bank or financial service can apply.
“I’m sympathetic to their desire not to waste their time, considering the work that will go into it,” Steadman said of the businessmen leery of any formal application. “If the answer is ‘Hell, no,’ it would be nice to know that upfront. I had a sneaking suspicion it could all end that way.”
For their part, bankers point out how they didn’t think the law would do anything other than highlight a problem and offer no solution.
“The state cannot issue a charter for a cooperative until an application is approved by the Fed, and you can’t apply to the Fed unless you’re a financial institution in the first place, or a business owned by one,” said Jenifer Waller, vice president of the Colorado Bankers Association. “All along, we said we didn’t think it would accomplish anything. The same laws that hinder institutions from banking the marijuana industry would hinder approval from the Federal Reserve.”