Colorado’s Perspective on the Cannabis Conundrum

By Don Childears

Coloradans are pioneers, risk-takers and entrepreneurs who don’t hesitate to step out as frontrunners. That can-do spirit was exemplified in 2012, when the state was among the first to legalize recreational marijuana.

While legalization has brought a windfall of cash to state coffers ($247 million in taxes and fee revenue last year), it also has ushered in expanded government expenditures (from law enforcement to health care) and a host of other new challenges, not the smallest of which is a conflict between state and federal law. Thirty states have legalized medical or adult-use marijuana; an additional 15 states have legalized only the use of cannabinoid oil for medicinal purposes, but we all are in the same boat.

A state can’t regulate or tax an industry for which it cannot track money, public safety risks associated with cash-heavy businesses cause great concern. (Colorado marijuana shops had $1.51 billion in sales in 2017 alone—almost all in cash.) Several federal laws preclude banks from serving these businesses, regardless of state law. From the start there has been a cry from public officials and the public for banks to serve marijuana-related businesses, or MRBs, and the Colorado Bankers Association for five years has asserted that only Congress can resolve the conflict. We were a singular voice then; now, that position appears unanimous.

CBA has repeatedly supported bipartisan federal legislation championed by Colorado Rep. Ed Perlmutter, Sen. Cory Gardner and others, which would create a carve-out from federal law for banks operating where marijuana is legal at the state level. Banks need the permanence of this safe harbor law, rather than inadequate guidance from the Financial Crimes Enforcement Network, which itself was based on Obama-era Justice Department guidance that was revoked in January by U.S. Attorney General Jeff Sessions.

Sessions’ rescission further obscured direction for banks. While about 20 banks and credit unions in Colorado are currently serving MRBs—with full knowledge and support of their boards of directors and under the watchful eye of their regulators—they do so at substantial risk. Although banks’ activity has yet failed to draw official regulatory criticism—so long as they file Suspicious Activity Reports along with other necessary tasks—great concern about repercussions for violation of unclear or nonexistent guidance remains.

Regulators at any time can change course and impose prohibitions and penalties. It won’t matter that bankers have followed previous DoJ and FinCEN direction exactly, or even that their regulators knew what they were doing. For now, it is illegal to deal in or possess controlled substances or the proceeds therefrom—including marijuana and the funds from it. BSA/AML requirements and restrictions layer complexity on top of this. Only the permanence of congressional action can resolve this.

Almost daily since 2012, CBA has been besieged by inquiries from the media, bankers, marijuana businesses, public officials and others seeking information, perspective and advice about banking the marijuana industry. CBA is putting its significant issue experience to use by hosting a nationwide conference Aug. 9-10 in Denver to inform bankers interested in serving the marijuana industry or in avoiding banking it, or public officials and others who want to understand the issue. This event will take no position on legalization or use of marijuana and will not provide guidance to MRBs in finding banking services. It is not meant for MRBs or vendors who advocate measures to evade federal law. The conference is focused on helping bankers understand this issue regardless of whether they want to serve marijuana businesses or desire to keep cannabis funds out of the bank. Learn more about the conference and register.

Don Childears is president and CEO of the Colorado Bankers Association.