Colorado lawmakers have approved the world’s first financial system for the marijuana industry, a network of uninsured cooperatives designed to give pot businesses a way to access basic banking services.
The plan, approved Wednesday, seeks to move the marijuana industry away from its cash-only roots. Banks routinely reject pot businesses for even basic services such as checking accounts because they fear running afoul of federal law, which considers marijuana and its proceeds illegal.
The result: Pot shop owners deal in large amounts of cash, which makes them targets for criminals. Or they try to find ways around the problem, like drenching their proceeds in air freshener to remove the stink of marijuana and try to fool traditional banks into accepting their money.
“This is our main problem: Financial services for marijuana businesses,” said Sen. David Balmer, R-Centennial. “We are trying to improvise and come up with something in Colorado to give marijuana business some opportunity, so they do not have to store large amounts of cash.”
Colorado became the first state to allow recreational pot sales, which started Jan. 1. Washington state will follow suit, with retail sales expect to start in July.
The U.S. Treasury Department said in February that banks could serve the marijuana industry under certain conditions. With the industry emerging from the underground, states want to track marijuana sales and collect taxes. It’s a lot easier to do that when the businesses have bank accounts.
But most banks have shrugged at the Treasury guidelines, calling them too onerous to accept marijuana-related clients. The result is a marijuana industry that still relies largely on cash, a safety risk for operators and a concern for Colorado’s pot regulators.
“This is not something that we can wait for any further,” said another banking sponsor, Rep. Jonathan Singer, D-Longmont.
The bill approved Wednesday would allow marijuana businesses to pool money in cooperative s, but the co-ops would on take effect if the U.S. Federal Reserve agrees to allow them to do things like accept credit cards or checks.
Democratic Gov. John Hickenlooper supports the pot bank plan and is expected to sign it into law, though a spokesman said Wednesday the governor had yet to review the final language.
Lawmakers from both parties supported the banking co-ops as a way to properly audit marijuana shops and to make sure they’re paying all their taxes. Dispensary owners came to the Capitol this session to tell of their difficulties paying taxes and utilities in cash and the dangers of dealing in cash.
“It is very easy to see somebody get killed over this issue,” Marijuana Industry Group Director Michael Elliott testified last month.
The plan had bipartisan support, though some Republicans said that the effort won’t pass federal muster.
A few banks are accepting marijuana clients in light of the federal regulations.
Numerica Credit Union in eastern Washington state is accepting limited business from marijuana growers and processors, The Spokesman-Review reported Wednesday.
Colorado pot shop owners say a small number of credit unions will do business with them, too, though no banks or credit unions have said so publicly.
Countries that don’t ban marijuana don’t have banking systems unique to the drug.
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Kristen Wyatt can be reached athttp://www.twitter.com/APkristenwyatt
These businesses need to form their own savings and loan institution, dedicated to this industry specifically. Then they should invest in loaning back to the members who will use it to improve their infrastructure and purchase property, and build some REAL assets with all those profits.
The pot industry could help finance the hemp industry, too, and since the entire bank would be dedicated to growers and retailers, etc, it would be much more transparent to regulators.
With all the cash they will still have, they could also service ATM’s across the state, and charge 50 cents a transaction, which is considerably less than the big banks, for people to make withdrawals, thereby creating another profitable part of the whole picture.
The CF&G …Colorado Farmers and Growers Bank and Trust.
Has a nice ring to it.
There is a factor here that has not been mentioned much as yet in the whole story, and that is that because of the legal threat that has always been attached to selling pot, the costs at the final retail end were always extremely inflated, and not at all normal in terms of “retail” standards.
The thing is, pot is actually very cheap to grow, especially relative to the final costs that the old legal threat added to the total.
As most of us old-timers expected, the prices have remained at that artificial level even AFTER the legal threat was removed, which explains why the profit MARGINS for LEGAL pot producers are SO HIGH compared to, say, wine or beer distillation, or most any other retail product, for that matter.
Pot is really much less expensive to produce, even in its most sophisticated forms of oils and edibles, than traditional consumer products, and it is only the lingering influence of prohibition that creates the high retail prices.
But obviously, the market is thriving despite the high prices, those prices seem to be hovering but not dropping, and the results will be a very high profit industry compared to what it costs them to do business.
Certainly competition will eventually mitigate the high costs, but considering how easy it is for an experienced grower to clone-up, expand and increase their production, until that price drop starts to happen naturally, the profits they will reap will be much higher, just as a commodity, than anything else on the commodity markets.
It isn’t just a matter of how much they grow, it is a matter of how much they profit, and right now, that is driving the biggest cash cow in the history of Colorado commerce.
I wonder if growers have to balance the price they can get on the black market vs. what they can get in legal states. The temptation to sell to both markets and keep the price about the same seems pretty high.
No one knows yet what the ramifications will be, but if they enforce the legal boundaries it will probably force both the black market up and the legal market down, and eventually it will be a wash, and thereby take any reason to buy blackmarket out of the loop.
But no doubt, there will still be pot “moonshiners” dodging federal and state “revenooers” as long a there is money to be made, in any quantity or percentage.
“a network of uninsured cooperatives”
???
there’s a ton of question marks behind that fragment…