About 150 dispensary owners across the state are searching for a bank that will take their accounts, said Tanya Garduno, president of the Colorado Springs Medical Cannabis Council and owner of Medical Cannabis Center.
The medical marijuana industry has survived regulations, licensing, security and stacks of rules. But this banking issue “could be the deal breaker,” Garduno said. “We have to account for everything — sales, patient lists — trying to put this together with no bank could really kill us.”
It’s been nearly two months since Colorado dispensaries received notice from Colorado Springs State Bank that they had until the end of September to clear out their accounts. The bank, which is owned by Texas-based Herring Bank, was the last bank to openly welcome the dispensaries’ business.
“Everyone is trying to make it work on a cash basis,” Garduno said. “It’s going to be a funky next three months. I’m sure there will be folks that will shut down.”
So far this year, medical marijuana businesses in Colorado Springs have generated about $23 million in sales and contributed $580,533 in city sales taxes. That’s a 52 percent increase over last year’s collections and a sign that the industry is growing.
But, that does not make them desirable to bankers.
Banks fear being accused of money laundering and drug trafficking. While use of medical marijuana and dispensaries are legal in Colorado, the federal government does not recognize state’s authority and considers it illegal business.
The Federal Deposit Insurance Corp., one of three banking regulators, has not issued specific guidance for banks on doing business with the medical marijuana industry. However, federal law requires banks to report suspicious activity. And, in June, the U.S. Deputy Attorney General James Cole issued a memo to states attorneys that said, “Persons who are in the business of cultivating, selling or distributing marijuana, and those who knowingly facilitate such activities, are in violation of the Controlled Substances Act, regardless of state law.”
It’s going to take a change in federal and state law before banks put out the welcome mat, said Cliff Black, a Colorado Springs criminal defense attorney who has become an expert in medical cannabis law.
“I feel like we are repeating history when alcohol prohibition was ended,” Black said. “This is a big problem — the ability to deposit sales receipts in a bank.”
Colorado dispensary owners plan a full-court press in the coming legislative session.
They will push for changes in federal law to remove marijuana from the same classification as heroin. They are seeking changes in banking rules that would allow financial institutions to work with medical marijuana businesses without fear of conflicting with federal banking regulations. And, when the Colorado Legislature heads back into session in January, they will seek a change in state law that would allow them to open their own bank, one that does not require federal insurance.
“There is a slight chance they will pass,” Black said. “But, I think we are knocking at the door.”
It may take several times at bat before the laws change, Black said. But, public sentiment is turning in favor of legalized marijuana. In October, a Gallup poll on marijuana showed that a record 50 percent of Americans favor legalizing marijuana, while 46 percent of those surveyed said marijuana should remain illegal.
“Society is slowly changing,” Black said.
That could go a long way in getting marijuana removed from the Controlled Substance classification, which would remove the clash with the banks.
“At some point, these legalization efforts will win out,” Black said.
Sixteen states and the district of Columbia have legalized medical marijuana and the industry has now grown to a $1.7 billion market, according to a report by See Change Strategy LLC, an independent financial analysis firm that specializes in new and unique markets.
The report predicts marijuana markets will double in the next five years, driven by a rise in the number of legal patients and regulatory clarity.
Mark Slaugh, CEO of iComply which works with medical marijuana companies in marketing and compliance, said Colorado is leading the forefront of medical cannabis reintroduction, regulation and industrialization in the U.S.
“If we look at the medical marijuana industry and its development over the last year, it’s no wonder we’re seeing growth,” he said. “Business owners, society and patients are becoming more familiar with a taxed and regulated model that provides safe access and oversight on medical cannabis distribution.”
But, the lack of bank accounts makes it difficult to keep records, transactions and be the transparent industry that everyone wants it to be, he said.
Without bank accounts, medical marijuana business owners don’t have access to credit card machines and are paying bills in cash or buying pre-paid credit cards.
Until the federal laws change, medical marijuana businesses will be begging for a bank, Garduno said. The Colorado Springs Medical Cannabis Council has gathered up letters of support from city council members, police and other business leaders in an effort to convince a bank to work with them.
“We need to cut off the short term bleeding,” Garduno said. “We will call every bank in the country to find a bank to give us a shot.”