Of the 46 member institutions represented by the Colorado Bankers Association (CBA), only eight provide financial services to marijuana-business owners. Mostly handling cash transactions only, the budding industry is placed at a business disadvantage because of the lack of adequate financial services, according to local dispensary owners.
“I can’t even start an account with a trash company,” said Garrett Smith, owner of The Herbal Alternative in Cortez. “It limits my business, and it’s not fair.”
The lack of monetary services most other business owners take for granted impacts the marijuana industry on a daily basis, said Smith. Without bank accounts, Smith and others are unable to issue payroll checks or even buy office supplies using a debit or credit card.
At stake for bankers is the threat of civil or criminal penalty. Backed by the FDIC, the banking industry is prohibited from receiving cash from pot shops, since marijuana remains outlawed under the federal Controlled Substances Act. A bank that accepts cash deposits from a marijuana dispensary could be held liable for money laundering.
In a recent press statement, CBA president Don Childers warned his financial colleagues across the state that any bank serving the marijuana industry would do so at its own risk. To avoid federal prosecution, banks are required to not only know and control their customers’ activities, but also those of their customers.
“No bank can comply,” said Childers. “An act of Congress is the only way to solve this problem.”
Edward G. Merritt, Jr., President of Dolores State Bank in Cortez, agreed. He said it was too risky a proposition to provide banking services until Congress took action.
“We’re caught between a rock and hard spot,” said Merritt. “We would love to be able to help serve other customers, but our hands are tied due to the FDIC.”
The Dolores State Bank does accept cash deposits from one local medical marijuana dispensary, but Merritt quickly added the company had opted not to take on any additional cannabis related business.
Shifting blame
Paul Coffey, a Montezuma County medical and retail marijuana purveyor, said multiple bankers had denied him financial services since he entered the industry in 2010. He said it was bogus for bankers to now blame Congress.
“That’s a complete fabrication,” he said. “The public’s perception of bankers is their greatest issue.”
Vectra Bank CEO Bruce Alexander dismissed the theory that banks opposed servicing the marijuana industry because of moral objections. He added that the administrative costs associated with federal regulations and special filings simply made it an unprofitable business venture.
“Our role is not to be an ethical cop,” said Alexander. “The simple truth, we’d be violating federal law, and we’re not going to cross over that line.”
Based in Denver, nationally chartered Vectra Bank doesn’t accept customers from the industry because of federal prohibition of marijuana, said Alexander.
“The regulatory risk is just too high,” he said.
According to the CBA, some in the marijuana industry have gone to great lengths to disguise accounts related to marijuana, even spraying deposited cash with air freshener, for example. On the lookout for attempts at money laundering, banks must file Suspicious Activity Reports if anything appears improper.
Last year, about 1.6 million SARs were filed in the U.S. and 342 people were sentenced to an average of 40 months in prison as the result. The Dolores State Bank has filed multiple SARs, said Merritt.
“Even with our medical marijuana account, we have to file SARs,” he explained.
Sanctioned solution
To help ease legal and financial strains, Colorado passed the Marijuana Financial Services Cooperatives Act last June, which allows banks to provide financial services to state licensed marijuana businesses. The world’s first-ever marijuana credit union, however, still faces several hurdles before becoming operational. For one, it remains unclear if other financial institutions not serving the industry could accept checks or drafts drawn on credit union accounts.
In search of a solution, Coffey said he met with a credit union in Denver last week to discuss setting up a third-party verification system that would track his company’s finances. He said the new software, which would be subject to beta testing, would help prove that businessmen like him were not involved with money laundering.
“The same system is being used in other states that have legalized marijuana,” said Coffey.
Coffey argued that he’d be willing to accept additional oversight in an already over-regulated industry if it meant his financial transactions would be properly tracked and monitored. With additional financial oversight, Coffey insisted the public would have greater access to information regarding tax collections and subsequent appropriations.
“The taxpayers deserve to know,” said Coffey.
In the first 11 months of 2014, Colorado raked in $36.5 million in tax revenue from medical and recreational marijuana sales. About $2 million went to local governments and $7 million went toward the construction of public schools.
Smith pointed out the hypocrisy, stating Colorado officials had no qualms about accepting cash payments from the marijuana industry for tax collections before depositing those receipts into governmental banking accounts.
“It’s not a level playing field,” said Smith. “There’s a clear problem when you don’t allow a legitimate, legal business to bank. Something needs to be done.”
tbaker@cortezjournal.com