Financial institutions are refusing to do business with the burgeoning medical marijuana industry in Colorado, leaving entrepreneurs enmeshed in a bureaucratic catch-22
BY CHARLES BEVIER | Published in Denver Magazine
Sue Harank and Nicholas King launched their medical marijuana center, Alpine Herbal Wellness, in Cherry Creek in March. From the elegant offices, adorned with original artwork from local artists, the couple and their employees serve more than 500 patients.
“We are entirely self-funded. We have invested everything we have. In poker terms, we’re all in,” says Harank. It’s more than just a business for the couple — it’s a calling. They’ve seen first-hand how medical marijuana benefits those with life-threatening conditions. “When you hear from patients that they’ve gone from taking 130 pills a month down to 30, or patients that have gone from dozens of grand mal seizures each month to just a few, it makes all the difference.”
The couple has negotiated the complex and changing medical marijuana laws without complaint, but they were unprepared for being refused service by lenders. Three banks and one credit union initially were eager for their business. Then each abruptly shuttered their accounts. This caused costly delays in financial services, as well as mounting frustration. “It’s been nothing short of a roller coaster,” says Harank.
Others report similar treatment. At first, banks are interested, but then they withdraw services. Some dispensaries have gone through as many as five financial institutions. “It’s been a nightmare,” says Bill Cason, owner of The Health Depot on East Colfax, who has had three banks reject his business.
State officials want to increase transparency in the industry, but without bank records, that becomes nearly impossible. And without bank access, dispensaries can’t maintain withholdings for employees for federal taxes, Social Security, and Medicare, nor can they pay vendors or conduct credit card transactions.
A Tale of Two Departments
One must look to Washington to understand why the banking business is reluctant to serve the industry. At press time, 15 states and the District of Columbia have adopted laws to make medical marijuana legal. Three other states are near approval. Federal law, however, makes marijuana possession illegal.
In 2009, Attorney General Eric H. Holder Jr. issued a memorandum to all U.S. attorneys and the DEA, instructing law enforcement officials to leave the medical marijuana industry alone in states where it is legal.
However, banks have their own rules. Specifically the Bank Secrecy Act (BSA), created in 1970 and amended by the Patriot Act after 9/11, requires banks to report suspicious activity.
“We’ve repeatedly asked for guidance on this issue” says Jennifer Waller of the Colorado Bankers Association. “We’ve been told to be cautious, to adopt a wait-and-see attitude, until we get guidance from federal regulators. This is a growing problem in a number of states, not just Colorado. Eventually bank regulators will have to address the issue.” Three agencies regulate banking: the Office of the Comptroller of the Currency, the Federal Deposit Insurance Corporation, and the Federal Reserve Bank.
In May 2010, 15 members of Congress signed a letter addressed to Treasury Secretary Tim Geithner asking that his department recognize the medical marijuana industry. Written by Colorado Representative Jared Polis (D-Boulder), it asks the treasury to issue “formal written guidance,” assuring banks they won’t be targeted for doing business with companies that distribute medical marijuana. Denying bank access creates “an increased risk to public safety with potential theft or robbery that any cash-only or cash-reliant business faces” and makes it difficult for vendors “to accurately account for tax liability,” Polis wrote.
One Bank Steps Up
Where most banks see risk, Colorado Springs State Bank sees opportunity. It is the only bank that is openly doing business with the medical marijuana industry, albeit at a premium rate. Within El Paso County, the bank charges $100 a month for account access; from elsewhere in the state, it’s $200 a month.
The higher fees are needed to build a statewide infrastructure for the industry, including adding ATMs, deposit centers, armored-car courier services, and night-drop boxes, says Chance Williams, BSA compliance officer for Herring Bank, based in Amarillo, Texas, which is the parent company to Colorado Springs State Bank.
“We’re looking at the needs of the industry in real time and addressing the issues that are most important to them,” says Williams. “It is our desire to help legitimize the industry and give the state of Colorado the paper trail it requires.”
Charles Bevier is a longtime journalist who reports on sustainable building and environmental issues.