The biggest state’s rights battle since slavery is going on in America right now, and it’s still all about freedom. Four states have legalized and 23 states plus Guam have adopted medical cannabis laws. None of those places have accessible banking services for these legal operations. Imagine leaving work with your weekly or monthly wages in a bundle of cash in your pocket. Imagine needing to pay $100,000 per quarter to your state in employee payroll taxes, or rent or utility bills for your business, all in cash. Imagine the desperation as you try to find some safe way to store tens of thousands of dollars, document your sales, buy supplies, and pay your workers.
Colorado legalized cannabis first and they have gone first in the struggle over banking services too. A Huffington Post online piece from May 7, 2014 announced that the state had just approved a network of banking cooperatives to provide basic financial services such as secure vaults and checking accounts. But these cooperatives could not be insured, since bank and credit union insurance is handled at the federal level, through the FDIC for banks and the NCUA for credit unions. The push for coops fizzled in just a few days. The Huff Post quoted Colorado’s Marijuana Industry Group director Michael Elliott as saying they knew it would not fly; it was meant to “move the conversation forward.”
With the big boom in cannabis sales post-legalization, cannapreneurs were scrambling to find someplace safe to store all that money. Some filled closets at home, some rented storage lockers, and some even bought exhausted gold mines. Cannapreneurs paid their taxes with boxes or even buckets of cash. The state arranged curb service, complete with armed guards, for cannapreneurs showing up in Denver to pay their state taxes, as required by law. Security companies like Blue Line Protection Group stepped into the breach to provide vaults, armored cars and former police and military personnel as staff. No checking accounts though.
Cannapreneurs walk a banking tightrope. They need safe money storage for oodles of cash and a way to document their financial activities for the state. But, if their money has that distinctive scent or if they are locally known as involved in the trade, the bank or credit union is required to file a SAR (Suspicious Activity Report) with the feds. The SAR is meant to target money-laundering operations that obscure illegal activities and dates from the Al Capone era. It was federal tax regs that finally took the mobster down. Ever since then, the SAR has been the best and often only way to bust really bad guys. The same rule caught some hapless growers though. Others, grown wiser, took to spraying their cash with air freshener or tumbling it in a dryer with fabric conditioner sheets, the nearest thing to literally laundering their money. Oh, the irony!
“But wait,” say those of you savvy about national news. Didn’t President Obama direct the feds to back off on persecuting, oops, prosecuting in legal states? Yes, indeed, and that has perversely increased the rock and the hard place squeeze. The Cole Memorandum, written in the summer of 2013, named for Assistant Attorney General James Cole, instructs federal law enforcement to focus on specific areas of concern; keeping cannabis away from kids, from crossing into non-legal states and out of the hands of criminals and international drug cartels, rather than going after legit cannabis businesses. And in early 2014 the U.S. Treasury Department gave banks in legal states the go-ahead to open accounts for cannabis businesses. So, in theory, we were underway toward a saner system. In practice, banks and credit unions found themselves in the squeeze too.
Those recent federal banking changes hide a nasty truth. Now, every legal cannabusiness opening an account automatically triggers the filing of a SAR. Last December, a USA Today online headline shouted, “Feds stockpile reports that could incriminate pot stores.” The US Department of Justice has amassed hundreds of SARs that they can use to shut down Colorado’s legal cannabis trade in about 24 hours. Growers and producers could be put away just like Al Capone. Bank tellers could get prison sentences. Banks could lose their FDIC protection.
Financial institutions are thoroughly spooked. Customers speak of having their accounts closed within weeks of opening them. Some cannapreneurs have been accepted and then rejected by up to eight banks. Medical cannabis producers serving cancer patients and kids with epilepsy have had their accounts closed. Even a lawyer, Rachel Gillette, who is suing the IRS on behalf of a grower, was refused an account by several banks.
It’s a topsy-turvy time in the winter wonderland of Colorado. But, the feisty folks of cannabis culture are far from giving up and continue to challenge federal intimidation. And the challenge has spread beyond Colorado’s borders, with mixed results. The country’s first cannabis credit union was granted a state charter in Colorado on November 19, 2014, though it has yet to open its doors. Fourth Corner Credit Union is set to offer checking and savings accounts and electronic transfers. Until they receive a master account number from the Federal Reserve, though, they cannot access the national electronic banking system. And, the National Credit Union Administration (NCUA) has been slow to offer them insurance coverage. Both of these actions have always been slam-dunks for financial institutions before, once the state charter has been granted. Not this time. In a July 31, 2015 press release, Fourth Corner CU announced they had been denied by both entities; they are suing both.
Oregon’s MBank, which had been quietly working with Oregon and Washington State cannabusinesses, splashily announced last January that they would accept accounts from Colorado, according to the Denver Post. This move made them way too visible and jeopardized MBank’s existing coverage of West Coast cannabusinesses. The Denver Business Journal reported on April 11 that MBank had given all of its cannabusiness customers 60 days notice that their accounts will be closed.
The American Indian cannabis advisory group, CannaNative is ready to help tribal governments use their casino-running savvy to operate financial services for the cannabis industry. In a Bloomberg Business online article, San Diego area Native and Harvard Business School graduate Anthony Rivera (Acjachemen Nation) speaks of casinos as “little banks” that are quite used to lots of bureaucratic regulations and that take in large ‘deposits’ through gaming. Though tribes have sovereignty on their own lands, a bullying federal presence is not uncommon. It remains to be seen how this clash between the federal government and America’s First Peoples works out. With some luck, it could be the battle of the Little Big Horn all over again (remember who won that one?), finally opening a way for cannapreneurs to safely stash their cash..