Article on the September 10 Senate Judiciary hearing about marijuana. Appeared in the October issue of The Daily Doobie.
Colorado marijuana businesses received promising news from the Department of Justice during a Senate Judiciary hearing on state and federal marijuana laws in Washington DC.
The hearing addressed a top concern for marijuana businesses, changing necessary federal regulations for marijuana companies to access financial services. Expert testimony and comments from Committee members revealed a near consensus for making changes to federal banking statutes and implementing the necessary changes quickly for public safety. Three senators serving on the committee represent states with medical marijuana laws and discussed the legal dilemma with great awareness of the challenging realities in their home states.
Senator Patrick Leahy, chairman of the Senate Judiciary Committee, stated in opening remarks, “When the banking industry is unwilling to do business with marijuana companies for fear of violating federal money laundering laws; and with no access to banks and credit cards, the cash only marijuana businesses are a prescription for problems.”
Andy Williams, owner of Medicine Man Denver, the largest medical marijuana center in Colorado, attended the September 10 hearing. As board member of Medical Marijuana Industry Group, MMIG, Williams made the trip to Washington DC to attend the hearing and lobby federal legislators. He described the hearing as “very positive” and called the congressional committee support for banking reform “overwhelming”. Repeated support for banking reform left Williams feeling very hopeful because “these changes will legitimize the industry”.
Also representing MMIG, Norton Arbelaez, partner and compliance officer for River Rock, called it “a historic day” and said the hearing regarding marijuana laws was “the best in living memory”. Arbelaez describes the current banking climate for marijuana companies as “hit or miss”. Some banks have grandfathered their current marijuana businesses and do not accept new accounts. Some marijuana businesses have had no difficulties with banking because of a greater degree of moderation in business name and practices. The most common experience is a marijuana business opening an account, only to have the large cash deposits, often scented with the fragrance of marijuana, prompting bank officials to close accounts for fear of violating federal law. Some banks have been directly contacted by federal agents. Recently, Rocky Mountain Credit Union received a letter from DEA advising the institution to drop all marijuana company accounts.
In regards to reforming banking access, Chairman Leahy asked Deputy Attorney General James Cole, directly, “What is the Dept. going to do?” The next step, Cole says is for banking regulators to revise the federal money laundering statutes, which cannot be changed until direct guidance from the Department of Justice is received. Cole indicated to the Senate Judiciary Committee these necessary communications have begun.
The hearing was full of positive rhetoric, but, says Arbelaez, something concrete needs to be done. Bank compliance departments need to know how to adhere with relevant laws. “The banks need specific guidance from the Department of Justice and State Comptrollers.”
The current lack of bank accounts and large amounts of cash make marijuana businesses targets for robbery. With monthly payroll expenses of $150,000 and operating costs of $200,000, Medicine Man Denver grapples with a large cash operation. This impacts employee payroll, contractor payments, and supply purchases. Cash payments are not convenient or ideal, the way businesses operate now. Supporting business, such as security companies, technology and software, and packaging suppliers, would rather conduct business normally. Says Williams, “some contractors and suppliers won’t take our business because they do not accept cash.” It is more difficult to pay invoices and payroll with cash than with a bank card or company checks and maintain safety and security.
Another big problem facing marijuana businesses is finding investment capital for business expansion into the emerging legalization market. More capital is needed to purchase real estate, equipment, and hire additional staff during growth phases of companies. Without access to low interest loans and traditional forms of financing, companies are limited in growth. “How can an industry grow without proper financing?” asks Arbelaez.
In testimony, Jack Findlaw, Chief Legal Counsel for Colorado Governor Hickenlooper,described cash only marijuana businesses as a “criminal and regulatory challenge”. With the barriers to legitimate banking services, legal marijuana businesses have taken loans from “disreputable financial institutions” who often charge high interest rates. After the necessary changes occur, Andy Williams sees an opportunity for the local banks and credit unions opening their doors to Colorado marijuana businesses. Market research suggests sales will remain largely cash based. The first banks to welcome accounts with marijuana companies win customer loyalty from beleaguered businesses and can garner the lucrative cash accounts necessary for banks to offer lending capitol to customers. The creation of a state bank is another realistic solution for marijuana businesses.
Andy Williams says the current lack of access to bank services and the large amounts of cash sales causes public safety issues. Most experts and Judiciary Committee members testified to concerns for public safety and repeated the request for swift federal reform. Large amounts of cash create armed robbery targets and endanger employees, innocent bystanders and law enforcement.
Armored car services are contracted by marijuana businesses to protect employees and handle the large amounts of cash in a safer manner. Senator Leahy asked Deputy Attorney General James Cole about reports of DEA agents threatening armored car companies into dropping marijuana business clients. Cole replied DEA agents were asking procedural questions and not actively forcing the close of accounts. To the contrary, Norton Arbelaez, says armored car company, Brinks was recently contacted by DEA agents and told to drop all marijuana business clients in Colorado.
Senator Leahy, repeatedly told Deputy AG Cole to resolve this matter of the DEA agents. “In the DEA maybe sometimes bureaucracy trumps reality, as it does in this case. It creates a problem.” Namely, DEA agents creating an opportunity for armed robbery that endangers innocent people and law enforcement.
It is the clear conclusion from the Senate Judiciary Hearing that changes to the federal money laundering statures is on the horizon. Arbelaez calls this change the “last bridge to legitimacy” for marijuana businesses.