All businesses have their challenges, but there is one unique to those in the marijuana industry: Banking.
Despite the legalization of cannabis in a growing number of states, the federal government still considers marijuana illegal. That means traditional banks don’t want to risk being slapped with charges of money laundering for aiding and abetting known drug dealers. Where existing pot-based businesses had accounts, they’ve largely been shut down. Most in the industry have never had a bank account, never mind a loan.
This has led to a very serious dilemma: How can those in the marijuana business safely, effectively and legally manage their money without the assistance of banks?
Many have resorted to keeping bundles of hundreds of thousands of dollars in cash in safes, doling it out in discrete clips on pay day. Around-the-clock security is a must, and any sort of transfer typically requires the assistance of armed guards in armored vehicles. Without the kind of ease that an electronic transfer or access to a credit card provides, the cost to these companies is steep.
Our marijuana lawyers know this makes it very tough to keep a marijuana business growing.
The good news is there are ongoing efforts to change the legal landscape. The New York Times recently chronicled the efforts of a group of entrepreneurs who are working to found the first-ever bank that would solely serve the marijuana industry. In order to make that happen, they have to make deposits into a Federal Reserve Account. Unfortunately, for now, the agency won’t give the stamp of approval.
They aren’t giving up. The partners have received a state-issued license for their company, dubbed the Fourth Corner Credit Union. They’ve even gone so far as to lease a downtown Denver building and put up a social media website.
Technically, the company could operate in the state of Colorado solely with its state-issued license. But here’s the problem: Without approval form the Federal Reserve Bank for a so-called master account, the financial institution wouldn’t have the authority to use the funds deposited, nor would they be allowed to complete electronic transfers with other banks.
While most accredited banks are approved for a master account within just a few days, the application for Fourth Corner has been pending for months. The only update the company received was last month, when the reserve finally informed investors the request was being reviewed.
If the Federal Reserve did approve the application, that could open the flood gates. Finally, marijuana businesses would have a safe place to borrow and deposit. Other institutions would likely follow, the government would have to recognize those companies too. If the government became complicit in the business of marijuana, it would have little grounds on which to argue against its trade and use from a legal standpoint.
As one Stanford Law School banking expert stated, suddenly, this has taken a mid-level bureaucrat decision and turned it into “an extraordinary question of federal policy and constitutional law.”
If anyone has a strong shot at success, it’s this group, which includes a number of banking lawyers, including one who is an expert in fraud law. The group has additionally paid more than a half-million dollars to a management company to organize the credit union. Plus, board members include a local surgeon and a Denver city councilman.
It has the capital. It has the people. It has the systems. Now, all it needs is formal federal approval.
The Los Angeles CANNABIS LAW Group represents growers, dispensaries, collectives, patients and those facing marijuana charges. Call us at 714-937-2050.
The First Bank of Bud, Feb. 5, 2015, By Matt Richtel, The New York Times
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New Medical Marijuana Research Focuses on PTSD Treatments, Feb. 9, 2015, Los Angeles Marijuana Lawyer Blog