Nearly a year after Colorado’s first legal marijuana shops opened, the thriving industry’s biggest problem is deciding what to do with all of its cash. Now, the state banking commission believes it has found a way to free pot entrepreneurs from the regulatory haze between federal banking laws, Drug Enforcement Agency (DEA) policy, and the state’s right to experiment with legalization.
The nation’s first bank for marijuana pushers, growers, and investors will open in January after Colorado’s banking regulators approved a charter for The Fourth Corner Credit Union.
The first-of-its-kind bank will allow state business owners to move away from relying on cash for every transaction. Business has been very good for marijuana sellers since the state’s carefully designed legalization regime came online in early 2014, but traditional banks have refused to do business with the industry for fear of inviting punishment from regulators that are required to enforce the federal prohibition on the drug. That inability to access banking services has pushed the businesses into the arms of companies like Blue Line Protection Group, a security firm that specializes in moving and safeguarding huge piles of cash for the marijuana industry.
As the cash stacked up and security concerns mounted, Colorado’s banking regulators came to view that problem as justification for approving a pot bank. Their rationale hinges on a detail from the Department of Justice’s 2013 announcement that prosecutors should scale back prosecutions of marijuana offenses and stop pursuing cases against pot businesses that operate in compliance with their state’s drug laws. The memo announcing those changes described eight factors that prosecutors should continue to pursue aggressively, including “preventing revenue from the sale of marijuana from going to criminal enterprises, gangs, and cartels.”
Keeping Colorado’s marijuana revenue out of the hands of criminal enterprises will be much easier if the industry doesn’t have to rely on cash. “If you can’t get your cash into the Federal Reserve system, you end up stockpiling it in your home, in caves, in your business. At some point, the risk becomes worth it for organized crime,” state financial services commissioner Chris Myklebust told USA Today. “I’ve never even held a joint but I really want to see them banked.”
A state charter for Fourth Corner is a key step, because it requires the Federal Reserve to acknowledge the bank and give it access to the technological infrastructure for processing payments and conducting electronic transactions. But unanswered questions remain. For one thing, Fourth Corner does not yet have deposit insurance that all financial institutions are required to hold. Approval from the federal agency in charge of insuring credit unions could take two years, so Fourth Corner may have to seek private insurance instead.
But insurance is a relatively minor hurdle compared to the more abstract problem predicted by the Colorado Bankers Association (CBA), which advises members that doing business with Fourth Corner is too risky to be wise. Because banks are responsible for monitoring their customers’ behavior and reporting suspicious or criminal activity, and any money coming out of Fourth Corner is inherently tied to the marijuana trade, any bank that accepts transactions originating at Fourth Corner risks incurring legal liability, according to the group. As a result, “it is unclear if checks and/or drafts drawn on these credit union accounts will be accepted by other institutions not serving the industry.”
“We consider ourselves regulated, legitimate businesses. We just want to have the same access to banking that other legitimate businesses have,” marijuana dispensary owner Kristi Kelly told USA Today. “I don’t want to pay people in cash.”