Pete Williams, chief operating officer of Medicine Man, makes a phone call in the marijuana dispensary. (Hyoung Chang, The Denver Post)

The banking barrier for marijuana industry showing cracks

The year began with one of the nation’s biggest ATM sponsors refusing to allow its machines to be in businesses with ties to the marijuana trade, and it ends with the first credit union of its kind at the precipice of opening its doors.

For the recreational marijuana trade, the roads into and out of 2014 are a study in contrasts, where the initial lockdown against access to banking services appears to be cracking, even as the drug remains illegal under federal law.

The industry’s biggest hindrance to calling the first year of legal sales in Colorado a huge financial success — more than $300 million in sales in recreational sales alone — has been the absence of a place to put all that cash.

A lack of banking — from deposits to the simple act of writing a check to pay an employee — was the biggest challenge for every pot business.

“It was apparent that a cash-heavy marijuana industry would be an invitation to corruption and criminal activity, so one of our priorities in implementing Amendment 64 was securing traditional banking and financial services for legitimate marijuana businesses,” Gov. John Hickenlooper said in a statement to The Denver Post.

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A common industry frustration was that while banks refused marijuana-derived deposits, they happily accepted those same dollars as deposits from state agencies that collected taxes from those businesses.

“One of the main things we are happiest to spend marijuana money on is solving the banking issue,” said Mike Elliott, executive director of the Marijuana Industry Group. “Not all of them have been credible solutions. And the roadblocks have been many.”

Then, Pueblo Bank & Trust, one of the biggest sponsors of privately owned ATMs, told providers it would not allow them to place machines near or in marijuana-selling businesses.

Suddenly customers of the cash-only businesses had no ready access to cash.

“While there has been a slew of issues, problems and purported solutions to the challenge of providing banking services to marijuana businesses in Colorado, little has changed,” the Colorado Bankers Association said in a statement issued to The Post. “Dealing with the proceeds from the sale of marijuana remains federally illegal.”

Efforts began for a way to pull banks and pot together without having to worry about federal regulators looming with new rules to stymie the relationship.

Directives from the Financial Crimes Enforcement Network division of the Department of the Treasury issued on Valentine’s Day were seen by some as a green light to banking. Bankers, however, saw it as a very dim yellow one, and most balked at rules requiring even more paperwork to identify marijuana-tainted money.

“Before the Valentine’s Day memo, many of the businesses had bank accounts in a don’t-ask-don’t-tell, unstable environment,” Elliott said. “Then it changed. Suddenly, they saw banks that had been willfully blind were suddenly auditing themselves, unable to pretend anymore. In one moment, things went from bad to worse.”

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Colorado bankers became even warier.

“It is all but impossible for any institution to comply with the ‘Know your customer’s customer’ burden outlined in the FinCEN and Department of Justice memos issued in February, which include ensuring marijuana isn’t used on public land, resold, transported outside of Colorado, provided to minors or other factors,” the bankers association said in its statement.

Then, in May, Colorado legislators came up with House Bill 1398, an 11th-hour proposal to create local financial-service cooperatives — the business equivalent of a credit union — for legal marijuana shops. Although not a solution, it offered a ray of hope.

Put simply, it would allow shop owners to band together to form a business that would handle the critical financial services they needed to operate. It offered a place to put all that cash that no one but the government seemed to want to handle. More importantly, it was a way to pay their bills in a manner that wasn’t a suitcase stuffed with twenties.

The hitch, though, was a requirement that the Federal Reserve System approve any co-op’s access to the nation’s banking system. Without it, the idea would have no chance of success.

“No financial institution can transact business unless they have access to the Federal Reserve System,” said Chris Myklebust, the state’s commissioner of financial services onto whose lap the co-op rule-making and oversight landed. “While it is a viable option, all depositors in Colorado deserve nothing less than the safety and confidence that federal deposit insurance provides.”

That idea slowed, too, with no takers on filing applications.

Problems acquiring bank accounts soon spread to those merely associated to the industry. Landowners who leased property to marijuana businesses had mortgages canceled, and others found no offers for refinancing.

Then, pot businesses were being penalized by the Internal Revenue Service for paying withholding taxes in cash when rules dictated they be negotiated electronically. Without a bank account, the businesses were hostage.

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In late November, word emerged of a new credit union forming
, the result of an overlooked section of state law that allowed it to operate pending federal approvals for insurance.

With a state charter in hand, and a virtual guarantee on obtaining insurance coverage — whether by a federal agency or privately — The Fourth Corner Credit Union appears headed to a grand opening in January. It awaits approval of a master account with the Federal Reserve.

“I can’t look back on this year without getting excited about the future. We’re going to get a solution. Marijuana will be banked,” Myklebust said. “The industry ultimately will be served by existing institutions or by something new.”

The banking-and-marijuana idea appears to be spreading to the mainstream, although bankers remain guarded about talking publicly. Most won’t, citing federal regulators who prefer a closeted, quieter optimism.

“We’ve seen more incremental progress in terms of individual institutions beginning to open up their doors to cannabis businesses, if still very quietly, as well as state-level efforts to find workable solutions in lieu of federal action,” said Taylor West, deputy director of the National Cannabis Industry Association in Washington, D.C. “What we haven’t yet seen is a full-scale, sustainable solution from Congress to end this crisis once and for all.”

Congress has made attempts, with most efforts to open up the banking logjam failing to move farther than a committee docket.

“We’ve done a lot to get marijuana businesses the banking services they need, but in the long run, to ensure the continued strength and safety of our regulatory system, we hope Congress will act to allow for traditional banks to provide traditional services to marijuana businesses without fear of legal action,” Hickenlooper said.

Outwardly, bankers aren’t as optimistic. “Recent reports of a marijuana credit union are inciting hope in the marijuana industry, but we are unsure if it will actually take root,” the bankers association said. “Access to the payment system is a key challenge among many other issues. We are not convinced this will occur soon.”

David Migoya: 303-954-1506 or

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