Banks to Legal Marijuana Businesses: Your Money Stinks (Literally)

Inside Colorado's marijuana economy.
Jan. 31 2014 12:04 PM

Your Money Stinks

Why banks won’t do business with the marijuana industry. (And why it’s a huge problem.)

A register and a scale from the Denver Relief dispensary in Denver, Colorado, January 2014.
A register and a scale from the Denver Relief dispensary in Denver in January.

Courtesy of Ry Pritchard

A few years ago, a Boulder woman who owned one of Colorado’s first dispensaries ran into some troubles with her bank. As she later recounted, the bank told her the money she was depositing into her business account reeked of marijuana. The bank was willing to take her money, but she would have to do something about the smell. Maybe Febreze would help. Her bank, in other words, asked her to literally launder her money.

Since then, the relationship between marijuana businesses and their banks has only become more fraught and complicated. Talk to anyone involved in Colorado’s marijuana industry—regulators, market players, law enforcement—and they’ll likely agree that the biggest obstacle to bringing marijuana out of the shadows is the industry’s inability to obtain basic banking services. The few Colorado marijuana operations still lucky enough to have bank accounts jealously guard the specifics for the protection of everyone involved, and reports of banks unceremoniously dropping pot clients are commonplace. The front desk at Colorado’s Marijuana Enforcement Division is stocked with jumbo-sized money counters, since most marijuana businesses have no choice but to pay the tens of thousands of dollars in licensing fees and taxes in cash. The situation has become so vexing that members of both parties from Colorado’s congressional delegation recently joined together to urge Treasury and Justice Department officials to do something about it.

The problem is that because marijuana is still classified by the federal government as a Schedule I narcotic, anyone who facilitates the cultivation or distribution of the drug, even in states where it’s legal, is in violation of the Controlled Substances Act. Banks that provide financial assistance are therefore risking prosecution as co-conspirators or aiders and abettors. Plus, by taking money from an industry that’s still illegal federally, a bank could be guilty under federal money laundering statutes—not an attractive outcome for an upstanding, publicly traded business.

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For a while, some banks were willing to work with marijuana businesses, even if they didn’t like the smell of their cash. That changed in June 2011, however, when the DOJ issued a stern memo threatening to prosecute on money laundering charges even those operations tangentially related to the marijuana industry. That led most banks to sever ties with the industry, and those that didn’t were extremely hush-hush about their involvement with marijuana growers and sellers. According to Michael Elliott, executive director of the Colorado-based Medical Marijuana Industry Group, those marijuana businesses that still have bank accounts try to keep multiple small accounts at different financial institutions. Having different bank accounts means you can spread the money around, which keeps your accounts from getting flagged for large cash infusions and gives you backups in case one or more of your accounts gets closed.

Last Thursday, Attorney General Eric Holder offered a shred of hope when he said pot businesses operating under the imprimatur of state law should have access to banking services and promised forthcoming government rules to help them do so. Still, it’s not as if the Obama administration can single-handedly change federal law; the most it can do is instruct prosecutors to not prioritize marijuana banking cases—and in the meticulous world of banking, that might not be enough to persuade banks to play ball with the marijuana industry. As Vanderbilt law professor Robert Mikos noted in an email, “I think the exercise of prosecutorial discretion (i.e., non-enforcement) only gets you so far. I can just imagine bank compliance officers scratching their heads over the idea of only having to comply with laws that are being enforced.”

The legal U.S. marijuana market is predicted to hit $2.34 billion in sales this year; it’s hard to conceive of any industry that size not having ready access to even the most basic of financial services. Why does that matter? One benefit of banks is the security they offer. And with all the marijuana-related cash exchanging hands in Colorado these days, security is a pre-eminent concern. It doesn’t help that there seem to be fewer and fewer people around to help guard that cash. Last summer, the Drug Enforcement Administration reportedly began pressuring armored-car companies to stop working with marijuana companies. And last month, the Denver Police Department barred its off-duty officers from working security at marijuana operations, despite the fact that many moonlight as security guards at liquor stores and bars. That’s because department policy prohibits off-duty officers from working with any business that “constitutes a threat to the status of dignity of the police,” such as porn stores, strip clubs—and now, pot shops.

“They’re setting marijuana up to be a cash business that can’t protect itself,” says Elliott. “The roles have switched. Now the marijuana industry is the one working to keep things safe.”

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