Colorado Gives Marijuana Credit Union Green Light

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October 23, 2016
Denver, CO

DENVER — Colorado's marijuana businesses have a cash flow problem: Too much cash is flowing in and they've nowhere to put it.

Most banks refuse to work with marijuana businesses, which are legal in Colorado but remain illegal at the federal level. Now, a new credit union aimed specifically toward the cannabis industry hopes to offer a solution.

The Fourth Corner Credit Union hopes to open its doors within weeks in Denver, offering to accept cash deposits and to permit members to make electronic transfers for payroll and rent, and to buy supplies.

"We are on the one-yard line," said Mark Mason, an attorney advising the credit union's nine founders.

Colorado's banking regulators granted Fourth Corner a charter on Nov. 19, and now the union is waiting for the Federal Reserve to issue it a master account number, which would give it access to the country's electronic banking system. The credit union believes that it will get the account number without a fight because the Federal Reserve must give out numbers to organizations that have been granted state charters.

And despite marijuana remaining illegal on the federal level, Colorado's banking regulators say they're respecting their state's laws by approving Fourth Corner. The credit union still needs insurance and to sign a lease before opening.

"I'm a pro state's rights guy, and in Colorado we have legalized," said Chris Myklebust, the Colorado commissioner of financial services. "When I pull a $20 bill out of my pocket, and look at the front, it says it's legal tender for all debts public and private. Legal businesses in a state should be able to use the currency of the nation."

Federal prosecutors set the credit union in motion when they issued what's known as the Cole Memo, authored in summer 2013 by deputy U.S. Attorney General James Cole. The memo sets out eight areas where federal prosecutors and investigators will focus their limited resources on enforcing federal marijuana laws, including keeping pot out of the hands of kids, preventing it from being diverted outside states that have legalized its possession, and "preventing revenue from the sale of marijuana from going to criminal enterprises, gangs and cartels."

It's that language Myklebust sees as giving the green light for a well-regulated credit union handling marijuana money. Most banks avoid dealing with the marijuana industry because they could get prosecuted for engaging in drug trafficking or money-laundering. Fourth Corner officials say they can stick within the Cole memo's confines because they're going to carefully track and monitor each transaction. Traditional banks that suspect they are handling marijuana money are required to file special reports alerting federal regulators and prosecutors.

"If you can't get your cash into the Federal Reserve system, you end up stockpiling it in your home, in caves, in your business. At some point, the risk becomes worth it for organized crime," he said. "I've never even held a joint but I really want to see them banked."

Money-management concerns have gotten so bad in Colorado that many of the state's largest stores have hired armed security guards to handle their cash, which they use to pay bills and even their taxes, sometimes delivering it to the state Department of Revenue in buckets and boxes.

"We consider ourselves regulated, legitimate businesses. We just want to have the same access to banking that other legitimate businesses have," said Kristi Kelly, owner of GoodMeds marijuana dispensary and one of Four Corner's founding members. "I don't want to pay people in cash."

Writing a check would be far easier, said Dan Sullivan, a vice president at Blue Line Protection Group, one of the country's biggest marijuana-security firms. Blue Line's armored cars and ex-police-and-military guards collect tens of thousands of dollars a week from clients, securing the cash in private vaults.

"What a lot of people don't understand is that electronic money is easy to move around," Sullivan said. "Cash is an enormous amount of work."

The flows are enormous: one confidential informant told federal investigators that one Denver-area marijuana store clearing $500,000 a month, according court documents in a federal asset-seizure case, although its tax records claimed it had taken in $1.4 million for the entire year in 2011. Sullivan said many Colorado store owners are collecting tens of thousands of dollars in cash a week, in many cases stockpiling it at home or in storage lockers because they have nowhere else to put it.

"It takes a lot to do it right. Of course, there are a lot of people who do it wrong," Sullivan said.

Blue Line is working with several banks to provide its own financial services, although they would be more limited than what Fourth Corner hopes to offer.

Anyone with an "interest" in the marijuana industry would be eligible to join Fourth Corner, which organizers say would look no different than any other credit union. Colorado lawmakers this fall also created a system to permit marijuana co-op banks, but that effort has lagged because federal officials haven't indicated whether a co-op could get Federal Reserve access.

"As the state of Colorado, we've worked to push on every door. Now it's up to the federal government," Myklebust said. "It creates a sense of hope because the answer hasn't yet been no. But there's also a sense of frustration because we haven't heard yes."

Fourth Corner's founders are optimistic they've found the right path to navigate the legal and banking minefields the industry faces. But they're also willing to admit they don't have all the answers, and are eager to work with state and federal regulators to meet compliance rules and get and keep their doors open. To start, the credit union will largely limit its operations to Colorado, and many transactions will have to be approved by bankers keeping a close eye on where the money is flowing, to ensure it's going to pay legitimate bills and not being diverted to cartels or gangs.

"They don't give you a how-to manual to bank marijuana money," Mason said.

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