DENVER—Attorney General Eric Holder has agreed to issue guidelines making it easier for banks to do business with retail pot shops, but that won’t necessarily solve the marijuana industry’s banking problems.
Don Childears, president and CEO of the Colorado Bankers Association, said in a statement that bankers are still nervous about doing business with an industry that’s still illegal under federal drug laws, even with a go-ahead from the Justice Department.
“At best, Holder’s statement is a ’proceed with caution’ yellow light,” said Don Childears, president and CEO of the Colorado Bankers Association, in a statement. “While we are encouraged that the Attorney General has stressed cessation of prosecution, we don’t anticipate that bank regulators are prepared to tell banks they can ignore federal drug law. Two of those bank regulators are outside the executive branch and won’t necessarily follow the AG’s view.”
Holder said in remarks Thursday at the University of Virginia that he would issue a guidance “very soon” to federal prosecutors and law enforcement on banks that open accounts for marijuana retailers in states that have legalized recreational marijuana.
So far that applies only to Colorado and Washington, which is expected to open its first marijuana shops for adults 21 and over in June.
“You don’t want just huge amounts of cash in these places. They want to be able to use the banking system,” said Holder. “There’s a public safety component to this. Huge amounts of cash, substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited, is something that would worry me, just from a law enforcement perspective.”
Since its Jan. 1 launch, Colorado’s first-in-the-nation recreational marijuana business has been booming, collecting as much as $1 million per day in combined sales at its roughly 40 stores.
That success has magnified the industry’s need for reliable banking. Many stores are conducting their sales on a cash-only basis because they can’t open bank accounts or accept credit cards. Stores that do have access to banking often have to do so on the sly.
Tim Cullen, owner of Evergreen Apothecary, belongs to a business-management service that has allowed him to open a bank account using a different name. Even so, he still can’t obtain a small-business loan from the bank for his rapidly growing business.
“We don’t like it, the bookkeepers hate us, but that’s the way it goes,” said Cullen.
For state and city regulators, the difficulty comes in figuring out how much these cash-only enterprises owe at tax time. Recreational marijuana is subject to a 25 percent excise tax and a state sales tax of 10 to 15 percent, as well as municipal taxes that vary by locality.
“They’re trying to collect sales tax from businesses that do their books in pencil,” said Cullen.
For store owners, the lack of dependable banking has also led to real concerns about crime. Many shops have beefed up their security systems, knowing they’re likely to be juicy targets for thieves and criminal syndicates.
“We’ve got members, in some cases they’re beautiful young women, who are forced to carry around a whole lot of cash,” said Michael Elliott, executive director of the Medical Marijuana Industry Group in Denver.
Elliott said he was “encouraged” by the Attorney General’s remarks.
“Everyone recognizes that the banking issue has created serious public safety and accountability problems for this new industry,” said Elliott in a statement. “We urge Mr. Holder, the Treasury Department, and the Obama Administration to move quickly to create regulations that allow the legal marijuana industry, its employees, and customers to do business with banks just as any other business sector does.”
Childears said banks need more than Mr. Holder’s assurances that they won’t be targeted by federal law enforcement, saying it will take the passage of legislation by Congress.
Lawmakers are starting to get involved. Rep. Ed Perlmutter, Colorado Democrat, has sponsored the Marijuana Business Access to Banking Act, while the Denver City Council has approved a resolution urging federal authorities to help resolve the issue.
Until then, Childears said most Colorado banks are unlikely to see opening accounts for marijuana retailers as a high priority.
“Banking marijuana businesses is not a big business opportunity for banks, so resolving this is not something that will benefit banks,” said Childears. “However, the Colorado Bankers Association and the industry want this issue resolved to help others: the state, which we don’t believe can regulate or tax a business where it can’t track the money, which it can’t do in a cash-only business; the businesses and customers who deserve to conduct their legal affairs in a normal fashion and the general public for whom we have concern for public safety, since undoubtedly something will go wrong in a cash-heavy business and someone will get hurt.”