Following the successful passage of a constitutional amendment legalizing marijuana in Colorado last year, the cannabis industry is on track to be a fully legal state market by 2014.
Until this change, marijuana businesses have spent years growing and expanding in an adverse environment.
While legalization — and the Federal government's recent decision to step back and not interfere through drug raids — will remove some of those inhibiting effects, there's still a lot that is keeping entrepreneurs down.
Good news came this week when the Justice Department announced it was reviewing its policies on banking restrictions for marijuana companies, according to NBC. This, more so than almost any other federal action, will help the marijuana economy develop unimpeded.
Let's take a look at how banking restrictions hurt the industry.
The first thing that an onlooker must think, is something along the lines of, "Man, it must be really easy to sell people marijuana!"
It's true, selling illegal drugs has oftentimes been a lucrative business historically. But the people behind the marijuana industry aren't drug dealers, they're entrepreneurs — people who pay their taxes, give their employees health insurance, and have all the responsibilities of a standard business.
The issue is, though, as a result of federal law there are outstanding restrictions on the way the fastest-growing industry in Colorado can conduct its business.
They get hit hard on taxes. They can't hold down a bank account, despite in many cases, being model businesses. And if you've ever wanted to endure the experience of being laughed out of a room, try going to your local bank to pursue a small business loan for your legal marijuana dispensary.
If you're a marijuana business, you probably won't be able to find a bank that is willing to hold your money. And if you do, they will probably eventually drop your accounts. Even worse, they may subsequently drop your personal accounts, retirement accounts, and any other sort of cash you have with their company.
This means a couple of things. First, you can't take credit cards or checks without a lot of difficulty. Second, you force your customers to carry cash, which puts them at risk of crime — when everyone knows you're an all-cash business, you and your customers become targets. This gets difficult quickly.
On a recent trip to Colorado, I spoke to Ryan Cook, the General Manager of The Clinic, one of the largest dispensary chains in the state.
Ryan explained that in order to pay his employees' health insurance, he would have to mail it in cash. To do this across state lines would be absurd.
Even more, The Clinic sponsors an annual golf outing to raise money for the Multiple Sclerosis Society.
This year the outing raised over $40,000. But just to show how absurd some of these banking restrictions are, Cook related how he had to drive a manila envelope full of cash to a very nice golf course just to pay for the day.
The club employees were shocked and had no idea what to even do with that kind of cash.
Betty Aldworth is the Deputy Director of the National Cannabis Industry Association, the closest thing that the marijuana industry has to a lobby. We spoke to her in Denver.
"People have a very tough time accessing bank accounts," Aldworth said. "They are unable to accept credit cards, making it more dangerous for patients."
The kinds of things the industry is asking for — and what the DOJ has indicated they're willing to consider — are fairly basic.
"We're not even talking about the business loans," said Aldworth. "Forget it. Nobody's expecting that. But boy, it would be nice to have a checking account."
Part of the reason that the DOJ may consider making it easier for marijuana businesses to have bank accounts is that the state of Colorado really wants it.
"Regulators want us to start bank accounts as much as we want to have bank accounts," said Aldworth. "It's hard to do the accounting and the audits. It's much more difficult than need be."
It's not actually preventing banks from taking on marijuana businesses as clients. It's just over-complicating, adding doubt, and removing clarity for marijuana business operations.
"A couple of years ago, in their early days of this problem, everybody got kicked out of one bank and then another bank would open up and would allow these accounts," said Aldworth. "Someone would say 'Oh, my bank such and such, my bank is allowing these accounts.' A large number accounts would migrate, but that would catch the attention of someone and then they would all get kicked out. So we have business owners that have been through eight, nine, ten bank accounts in three years."
Basically, banks evaluate risk. Marijuana businesses may be slightly riskier clients, but that doesn't necessarily, preclude them access to resources in a bank's eyes. It's pressure from banking regulators and the Treasury that make banks want out of pot.
We saw this earlier this year when we first spoke with Kayvan Khalatbari, an owner of Denver Relief. "We just actually lost our bank account after four years of being with the company, BBVA Compass," he said in an interview with Business Insider. "They sent us a letter and told us we had thirty days to get the hell out, even though I have accounts with Denver Relief, Denver Relief Consulting, both my pizzerias, my investment company and my property company and my personal accounts.
"As a result they’re probably going to lose around five to six million dollars in revenue a year."
Moreover, the banking reluctance extends beyond people who deal directly with marijuana. It even impacts businesses like Canna Security America, a successful security firm that caters to the specific compliance needs of Colorado marijuana businesses.
CSA doesn't grow, touch, or sell pot. They handle security systems. This has made them attractive to investors, due to their degree of separation from a federally illegal business.
But even their tangential relationship with pot has made it difficult to find a bank, according to owner Dan Williams.
"Our banker kept seeing the obscene amount of money we were transacting," Williams said, "how we're doing well. 'We can get you $50 to $100 thousand bridge loan, a line of credit for equipment and things like that.' He kept asking us about it, and I didn't want to get it until we needed it."
But when it came to the point when CSA actually wanted to take their banker up on his offer after a bout of expansion, things got difficult.
"Finally, we were about to move into the offices, hiring people, now let's ask for that line of credit they'd been saying they'd just give to us," he said. "We had everything — every criteria for that line of credit perfectly: personal credit, three years of books showing profitability, every criteria they've asked for we met and exceeded."
"We handed them this package and we get this phone call that says 'Unfortunately we decided not to give it you.'" he said. When they asked why, "In so many words, it was because, you know, we're associated with the cannabis industry itself."
But for people handling marijuana themselves, with very little hope of getting consistent banking, Williams said that some of the steps they've had to take are absurd in the modern digital economy.
"I've heard of people hiring people to move $600,000 in cash before," he said.
This is why the murmurs from Justice are so encouraging. Modern businesses should be able to accept credit cards, or at least write a check. They shouldn't have to worry about carrying bundles of cash. They shouldn't have to fear for their customers' safety going in and out.
As we've seen, nearly everything about the way the marijuana industry has evolved in Colorado has been consummately professional. This is the exception, and nobody seems to want it to be like this besides Justice. A change from their interpretation could make a huge difference to this market.
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