Medical marijuana has been legal in Colorado since 2001, and recreational marijuana has been legal for over a year, however, marijuana businesses have had limited, if any, access to banking services. Due to marijuana still being illegal at the federal level, traditional banks, fearing prosecution for aiding illegal drug dealers, have closed marijuana business accounts and will not provide loans to marijuana businesses.
It is very tough for marijuana business to grow without access to essential banking services (i.e. credit cards, electronic transfers, loans) and the all cash nature of the marijuana industry puts these business at risk.
First financial institution coming soon?
Mark Mason and a group of entrepreneurs in Colorado are working on de-risking the marijuana industry by establishing the first-ever financial institution specifically for the marijuana industry. To do that, they need to make deposits in a Federal Reserve account, and the agency hasn’t let them.
Mr. Mason and his partners have received a license from the state of Colorado for their Fourth Corner Credit Union. In November 2014 the group applied for a master account with the Federal Reserve Bank, which is the account used to deposit funds and transfer them electronically with other banks. It has been nearly three months since the application was filed and there has been no answer, just a letter in early January saying the request was under review.
Mr. Mason said, “This legitimizes the marijuana industry to the extent it’s never been legitimized before.” If Fourth Corner gets approval, businesses would have a place to deposit and to borrow. Other institutions might well follow, and the federal government “would become complicit, and the walls start tumbling down.”
Mr. Mason and Martin Kenney, a lawyer who specializes in fraud law, have put $600,000 into the management company that organized the credit union. Mr. Mason and Mr. Kenney recruited nine credit union board members including a local urology surgeon and a Denver city councilman to join them in their fight get the credit union approved.
Mr. Mason argues that the Federal Reserve Bank was not only within its rights to approve the credit union but was obliged to do so.
Cole Memo gave banks a “green light” to working with cannabis companies
On Feb. 14, 2014, the Justice Department and the Treasury introduced the “Cole Memo,” which provided guidance to banks on how to work with companies operating in the legal marijuana industry. Under the Treasury guidelines, banks are urged to file “suspicious activity reports” when a new marijuana business opens or closes an account or when such businesses exhibit activities that violate the Cole guidelines.
The guidance was advertised by many as a “green light” to banks, however, Mr. Childears of the Colorado Bankers Association doesn’t see it that way. “They were a yellow light at best,” he said of the guidelines. In fact, he argued, “They raised the liability for the banks.” The costs of filing suspicious activity reports, he said, are considerable and raise all kinds of questions.
The Federal Government is putting marijuana business and their customers in harm’s way every day. It is only a matter of time until someone is killed in an attempt to rob a dispensary. The Treasury Department needs to take action and implement a new policy that gives banks the green light to work with marijuana businesses. This would be helpful for both banks and marijuana businesses because it will enable marijuana business to be able use essential business services and it would give banks a new source of revenue.