California Weed

Amid California’s pot business boom, most banks run away from all that cash

Yolo marijuana farmers embrace new 'track-and trace' program

Under a pilot program in Yolo County, local cannabis growers are getting a crash course in accounting for their plants, products and shipping under California 'track and trace' rules to prevent diversion to the black market.
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Under a pilot program in Yolo County, local cannabis growers are getting a crash course in accounting for their plants, products and shipping under California 'track and trace' rules to prevent diversion to the black market.

The recent gathering at the Sheraton Grand hotel in Sacramento would have been improbable just a few years ago.

Marijuana farmers – clad in plaid shirts and jeans, and looking like, well, farmers – openly assembled for a meeting of the California Growers Association. But the trade group’s agenda topic – about banks refusing cannabis business – still spoke of doors closed and cash transactions made in the shadows.

Convening in the ballroom, CGA members shared stories about the problems they’ve had finding banks, credit unions or other institutions willing to take marijuana dollars, make loans to businesses and elevate the legal pot economy from a virtual cash-only industry to one with full access to the financial system.

“There was a problem with people ... having accounts closed,” said Ken Dickerson, a sustainable agriculture advocate who works with marijuana growers in Mendocino County. Financial institutions were rejecting banking privileges for people who failed to demonstrate they “were not engaged in cannabis,” he said.

Though federally prohibited, marijuana is now legal in some form in 28 states and Washington, D.C. But most banks remain loath to accept pot business accounts out of fear of federal money laundering laws that can consider such deposits as illegal transactions. Efforts in 2014 by the United States Treasury Department to ease rules for financial institutions wanting to service state-licensed marijuana businesses largely failed to diminish the uncertainty.

Now California officials, led by state Treasurer John Chiang, are hosting an ongoing series of “Cannabis Banking Working Group” meetings that look to identify policies under which “the cannabis industry may fully avail itself of banking services ... that every other business in California enjoys,” Chiang said.

California’s marijuana industry, valued at more than $6 billion, is expected to produce as much as $1 billion in state taxes after 2018 and recreational pot dispensaries open to the general public. But a lack of accessible financial services – including the ability to deposit funds or handle credit card transactions – continue to be the norm for marijuana businesses.

“Many banks refuse to open accounts for cannabis businesses, despite the fact that California now permits them to operate legally and openly,” Chiang said.

So marijuana businesses are looking for solutions – and the farmers are no exception.

At the Sheraton in a March 29 brainstorming session – separate from Chiang’s working group – Dickerson made an enticing pitch. First he asked for a show of hands of people who had trouble finding banks to accept their deposits. Arms waved skyward. Then Dickerson urged the crowd to join him in forming a credit union designed specifically to serve licensed marijuana growers. Dickerson even distributed a press release for the effort, called the California Growers Credit Union.

The idea was to establish a “nonprofit financial institution” in which licensed marijuana farmers could get bank accounts or basic loans for homes or automobiles.

“Can we reach out to our community for achieving cooperative results?” Dickerson asked, adding: “We want to be legal. We want to be responsible.”

Caz Tomaszewski, a Calaveras County cultivator, also spoke to the group. He said he was intrigued by the idea of a credit union but was fearful the Trump administration and new Attorney General Jeff Sessions might be eager to target such a venture.

“It seems like a great new frontier for the feds to come in and screw my farm,” he said. “My question is: ‘What is the honest risk?’ 

Soon after the session, Dickerson and would-be partners, including credit industry officials involved in private discussions for the venture, called the announcement premature and retracted their press release. They conceded that the notion of a pot growers’ credit union was still a dream – a work in progress, with organizers and investors still grappling with how to design such a entity under state and federal laws.

Even with the easing of federal banking rules, establishing a framework for pot banking remains a largely elusive quest.

In late 2013, as Colorado and Washington were preparing to open the nation’s first stores selling recreational marijuana, the Justice Department released a memo by Deputy Attorney General James M. Cole. The document famously announced that federal authorities wouldn’t raid state-permitted cannabis businesses if states enacted “robust controls” to keep pot from children and from being trafficked across state lines or into criminal markets.

Building on that memo, a year later the Obama administration’s Treasury Department offered banks guidance on how they may accept marijuana deposits from state-licensed businesses. But the department rules still required financial institutions to file “suspicious activity reports” on all marijuana related accounts, including whether the businesses appeared to be operating in conformance with the standards of the Cole memo or not.

Not wanting to take on that responsibility, many banks chose to stay away.

After the federal guidance came out, “it froze marijuana banking for awhile,” said Andrew Freedman, Colorado’s former marijuana industry regulatory czar. “What we actually saw was a lot of people backing out of marijuana banking relationships. In the short term, there was a lot of disruption.”

Freedman made that observation during testimony before Chiang’s cannabis banking group in a March 27 session at Oakland City Hall.

The 16-member panel, including state and local officials, law enforcement, banking industry representatives and financial regulators, convened its first public hearing in Sacramento in December, followed by another in Los Angeles in February. It will meet in May in Santa Rosa to begin working on possible policy recommendations for creating or encouraging banking services for marijuana businesses.

In an interview, Chiang said the panel’s end product remains uncertain. He said the group hopes to “put out a menu of options so that the principle players in the banking industry can decide which types of services” they can offer to pot businesses.

At the Oakland meeting, cannabis industry officials testifying – and expressing frustrations over banking – included Larry Thacker, CEO of the Caliva dispensary in San Jose. The thriving medical marijuana provider is one of that city’s largest local taxpayers.

And yet Thacker told the panel: “We do not have a transparent banking relationship. We cannot deposit cash into our bank because we would have to lie about the source of those funds. We don’t accept credit cards at Caliva. We frankly are at an operating disadvantage against other normalized businesses.”

Chiang said the lack of banking is also a challenge for state tax collectors. He said members of the state Board of Equalization have gone as far as making arrangements for marijuana businesses to deliver huge quantities of cash to pay state taxes.

“We’re taking about sums that some people would think are unimaginable in regards to carrying on one’s own body – hundreds of thousands of dollars ... with unknown security concerns,” Chiang said.

However, some financial institutions have embraced marijuana banking. One is Salal Credit Union, a $500 million Seattle-based institution catering to health care workers in Washington. In recent years, the credit union has accepted accounts from 275 state-permitted marijuana businesses.

Russell Rosendal, Salal’s CEO, testified at the Oakland meeting that credit unions with marijuana accounts “promote public safety by reducing cash circulating on our community streets.”

Rosendal said non-marijuana businesses often get approved for accounts at his credit union within 15 minutes. Yet he said, employees take up to 10 days to review potential cannabis accounts and also submit required federal “suspicious business activity” reports. He said it’s worth the effort for the credit union and marijuana industry.

“By bringing these ‘unbanked’ individuals into the financial system, we’re hoping to ensure them and their families financial success,” he said.

John Vardaman, a former Justice Department assistant deputy chief who investigated money laundering crimes, said at the Oakland meeting that “there is no federal law that explicitly prohibits financial institutions from serving cannabis businesses.”

But Vardaman, who helped write the Cole memo, said states must work to promote disclosure rules and other policies to help ease the fears of financial institutions.

“State legalized marijuana and marijuana banking are inextricably linked,” Vardaman said. “You simply cannot have the former without the latter. That means relevant authorities in states that have legalized marijuana must do everything possible to facilitate marijuana banking.”

Aging greenhouses in the Salinas Valley that long produced world-renowned cut flowers are being converted to grow cannabis, causing real-estate prices for these structures to spike.

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