Updated Dec. 28, 2015 at 6:40 p.m.
A federal judge said Monday he sympathizes with pot businesses faced with contradictory regulations, but he expressed misgivings about forcing federal officials to approve a marijuana credit union.
U.S. District Judge R. Brooke Jackson made it clear at a court hearing that he was not inclined to issue an injunction forcing the Federal Reserve Bank of Kansas City to grant a master account to Fourth Corner Credit Union.
“I would be forcing the reserve bank to give a master account to a credit union that serves illegal businesses,” Jackson said.
Colorado created Fourth Corner Credit Union last year to serve the marijuana industry.
The credit union had filed a lawsuit asking the judge to grant it a master account, which essentially is a business license for lending institutions. Without the ability to put money into banks, marijuana businesses operate on a cash-only basis, a practice that makes them vulnerable to crime.
Credit union coverage
Jackson took the credit union’s request under advisement and said he would issue a written decision.
The judge criticized memos by the U.S. Treasury and Justice Department that have sought to clarify pot regulations as “nothingburgers.”
He said if he were a member of Congress, he would vote in favor of allowing pot banking, but he is a federal judge and must uphold existing laws. As long as pot is considered a Schedule I drug, which puts it in a category that is considered a greater risk than cocaine, it is illegal to manufacture and trade marijuana in the U.S., he said.
Jackson repeatedly urged attorneys for the Federal Reserve and Fourth Corner to negotiate a resolution under the stipulation that any agreement they reach follows federal law.
Mark Mason, an attorney for Fourth Corner, argued that federal law gives the Federal Reserve no discretion and that it must grant the credit union a master account.
But Scott Barker, an attorney for the Federal Reserve Bank of Kansas City, said that would violate federal law prohibiting the sale of marijuana, among other issues.
Federal Reserve attorneys have asked Jackson to dismiss a companion lawsuit by Fourth Corner, saying that chartering a bank for marijuana businesses would be “criminal.”
“Even transporting or transmitting funds known to have been derived from the distribution of marijuana is illegal,” a motion said.
Marijuana banking issues
Jackson grilled both attorneys about apparent flaws in their arguments.
He asked Mason whether the Federal Reserve would have to issue an account to a credit union catering to methamphetamine businesses if Colorado passed a law legalizing the use of methamphetamine.
Mason indicated that was an unfair question because the Colorado legislature would never do anything like that.
But Jackson said many people believe that marijuana is a dangerous drug.
“How do you reconcile your answer, ‘We just happen to think marijuana is a better illegal thing to manufacture than methamphetamine’?” Jackson asked.
The judge also asked Barker why the Federal Reserve doesn’t negotiate with the credit union in a way that doesn’t violate federal law. They could include a clause that prohibited violation of federal drug laws, he added.
“Are you saying the Federal Reserve is giving out accounts based on what people believe in?” Jackson asked.
Barker denied that the Federal Reserve was making morality judgments.
“It is not the purpose and intent of the Federal Reserve of Kansas to go after the marijuana industry,” he said.
Barker said there are several legal and business reasons not to issue a master account to the credit union, including the fact that the business is not insured.
The Federal Reserve would be taking on the risk of possibly being prosecuted for violating federal laws, he said.
Last year, the U.S. Treasury Department issued rules for how banks can accept pot money. But the Federal Reserve now says marijuana proceeds can’t go into the banking system.
Kirk Mitchell: 303-954-1206, firstname.lastname@example.org or denverpost.com/coldcases