The marijuana entrepreneurs of Colorado will not have a special bank to call their own — unless a federal judge intervenes on their side.
The designated guardians of the U.S. banking system — the Federal Reserve — has declined to accept so much as a red cent that can be traced back to weed, because according to federal law, marijuana is a Schedule 1 narcotic.
Weirdly, the Treasury Department seems less concerned about that part. The Fourth Corner Credit Union (the bank that suffered a denial in Colorado) was designed using rules issued by the Treasury last year for how banks can accept drug money from states where those drugs are legal. Fourth Corner was chartered specifically to service the state’s $700 million a year industry and create a safe place to bank for it.
“We’re frustrated,” said Andrew Freedman, director of marijuana coordination for Colorado Gov. John Hickenlooper. “We tried to do the most with the building blocks of instructions they sent us, set up the most rigorous solution. And we still are left with confusion.”
The Federal Reserve is a non-negotiable part of the process, as it and only it can give a bank permission to access the federal banking system. Something that is not going to happen for the first pot brokers’ bank, according to the Fed, because “transporting or transmitting funds known to have derived from the distribution of marijuana is illegal.”
The credit union now wants a federal judge to step in and order the Federal Reserve to change its mind.
“It’s a phenomenal question about executive action,” said Peter Conti-Brown, a lawyer and banking historian at the University of Pennsylvania who is following the case.
The disconnect between the Fed and Treasury — whose stated goal is to “enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses” — is a little bit peculiar.
But the Fed says it is in a strange position and that while it does not intend to lock anyone up for this, it also simply can’t allow the banking system to house the proceeds of an illegal industry.
The Fed further compared the state asking for approval to a situation where “Colorado enacted a scheme to allow trade in endangered species or trade with North Korea.”
Which means, for the time being, pot is a cash business, even in states where it is a legal and regulated cash business.
“We’re still a Schedule I narcotic at the federal level,” said Tyler Henson of the Colorado Cannabis Chamber of Commerce, which represents pot growers and retailers. “We can provide every Band-Aid imaginable at the state level, but until the federal government acts on this, we’re stuck.”
Deirdra A. O’Gorman, CEO of the still-unopened credit union, remains cheerful.
“We’ll be able to figure this out sooner rather than later,” O’Gorman said.
The industry’s best bet for sooner relies on a federal judge stepping in and ordering the Fed to change its mind. But Conti-Brown is not exactly optimistic.
“I don’t think the lawsuit is going to go anywhere,” he said.
To check out what else is HOT in the world of payments, click here.