Banking issues still plaguing pot industry

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Basalt, Colo.-, November 23, 2017 | comments
When Kale Lacroux and his business partner announced in June that they were applying for a medical marijuana retail license for property they have owned in downtown Basalt for a decade, it seemed innocuous enough.

After all, medical marijuana has been legal in Colorado since 2010, when voters approved Amendment 20 by a 56 percent to 46 percent margin. In 2012, state voters passed Amendment 64, which legalized recreational cannabis, by almost the same margin.

At this time, pot — in either recreational or medical form — is legal in 29 states, plus the District of Columbia.

According to a recent CBS News poll, 61 percent of Americans think recreational marijuana should be legal, while a whopping 81 percent think medical marijuana should be legal.

The industry has become institutionalized in over half the nation in terms of both geographic area and population.

And locally, Basalt — already home to one retail recreational dispensary and soon to be home to a combination retail-medical dispensary — had one available medical marijuana license available, and no one had applied for it.

Enter Lacroux and his business partner.

Yet, there is one overriding issue: Pot, as everyone knows, is still illegal under the U.S. Controlled Substances Act. Enacted in 1971, it classifies cannabis as a Schedule 1 drug, alongside heroin, LSD, psilocybin and methamphetamine.

The illegality of pot under federal law adds two major layers of heartburn for those involved in the industry.

The first: The perpetual concern that the feds might decide to crack down on marijuana, despite its widespread legality on the state level.

Second: There is the ongoing issue of banking.

Fiscal Frustration

Lacroux learned the hard way about that latter point. Within 24 hours of announcing that he had applied to the town of Basalt for that last remaining medical marijuana retail license, his fiscal world was turned upside-down.

“I got a notice from the bank where I had been doing business for years that they were closing all my accounts,” Lacroux said. “And I mean all of them. Not only the accounts I had for my various businesses, but also my personal accounts — even my kids’ college funds. I had been doing business with that bank for years, and the amount we are talking about was up in the millions.”

Lacroux, who asked that the names of his other businesses not be used for fear of exacerbating his banking-related issues, was stunned, and pissed off.

“I don’t want to name names, but the branch manager of the bank where I had my personal and business accounts had come out on the record in Basalt as being against marijuana,” Lacroux said. “I think it is more than a coincidence that, shortly after our announcement, he notified us that he was closing our accounts. I think we had two weeks to make other arrangements.”

Lacroux scrambled to find a new bank. He did, but, shortly after opening new accounts, he was informed that, once again, because of his association with the marijuana industry, those accounts would be closed. This, Lacroux is fast to point out, occurred before his license to open a medical marijuana dispensary had even been considered by the Basalt Town Council, much less approved.

Lacroux’s story is hardly isolated.

The owner of an Eagle County grow operation, speaking anonymously about an ancillary issue in October, said banking and the process of conducting basic financial transactions associated with running a business was the most vexatious component of his operation.

And this is not just a local issue.

According to Kristi Kelly, executive director of the Denver-based Marijuana Industry Group (MIG), banking is a perpetual headache for people involved in the pot industry.

“Banking is still very much of a challenge,” said Kelly, who owned several medical marijuana shops before going to work for MIG, an industry trade and advocacy organization with 500-plus members. “The main issue is the fact that marijuana is still illegal under federal law. That translates into a hesitancy on the part of banks to associate with businesses that are involved with pot — from growers to retail operations.”

After States Legalized Pot, Feds Offered Guidelines

Kelly said many people mistakenly think it’s completely illegal for banks covered by the Federal Deposit Insurance Corporation to do business with the pot industry.

“The concern on the part of banks is more centered on FinCEN — the Treasury Department’s Financial Crimes Enforcement Network,” Kelly said. “The federal government has issued guidelines under the Bank Secrecy Act for businesses associated with the pot industry.”

Those guidelines are more commonly known as the Cole Memo. James Cole, a former Justice Department deputy attorney general, issued guidelines to prosecutors during the Obama administration after many states had legalized pot in one form of another.

According to the guidelines, prosecutors should focus on:

• Preventing the distribution of marijuana to minors;

• Preventing revenue from the sale of marijuana from going to gangs and cartels;

• Preventing the diversion of marijuana from states where it is legal under state law to other states;

• Preventing state-authorized marijuana activity from being used as a cover or pretext for the trafficking of other illegal drugs or other illegal activity;

• Preventing violence and the use of firearms in the cultivation and distribution of marijuana;

• Preventing drugged driving and the exacerbation of other adverse public health consequences associated with marijuana use;

• Preventing the growing of marijuana on public lands and the attendant public safety and environmental dangers posed by marijuana production on public lands; and

• Preventing marijuana possession or use on federal property.

Banks Have Discretion
Much of the subsequent wording of those stunningly lengthy and detailed guidelines deals specifically with banking.

What those guidelines do not do is prohibit banks from doing business with the pot industry.

Rather, it clarifies the manner by which banks must do so, the gist being that it is incumbent upon the banks to make sure that they do not run afoul of any of the stipulations outlined in the document. Banks that choose to do business with the pot industry are required to essentially vouch for their clients and, if those clients are found to be running afoul of any of the guidelines, then the bank is considered complicit. 
Essentially, they would be considered by the federal government to be participants in crimes that amount to money laundering.

“That leaves it up to the individual discretion of the banks,” Kelly said. “They have to go through a detailed vetting process to make sure the pot business is being run legally. Most banks are simply not willing to take that chance.”

Consequently, many pot-related businesses need to be creative when it comes to banking.

Some, according to Kelly, still operate on a cash-only basis. Some purchase pre-paid debit cards in order to conduct even the most basic transactions. Companies that own other businesses establish a subsidiary for their pot operations with innocuous sounding names, like “Joe’s Pie Shop” or some such, in order to open bank accounts that allow them to write checks and accept credit and debit cards.

That is what Lacroux had to do with his medical marijuana license application, which Basalt officials approved last week.

Again, he has asked that his newly established doing-business-as entities not appear in print. Suffice it to say, it is not “Kale’s House of Weed.”

“We have had to completely separate our various businesses,” he said. “Our new name for the medical marijuana part of our business does not come across like it’s associated with pot.”

Low-Key Aid

Some banks are beginning to specialize in working with the pot industry. But they are playing their cards very close to the vest.

Lacroux has established a working relationship with a Denver-area bank that is working with the pot industry. Not surprisingly, he asked, as part of consenting to be interviewed on this subject, that the name of the bank not be used.

“They are charging us big fees,” he said. “But it’s a legal operation, a real bank.”

Kelly said there several banking operations in Colorado that are trying to aid the pot industry. But she, too, asked that they not be named.

“There is still a lot of concern,” she said. “They are concerned that, if they make too big a splash, it will draw the attention of the feds. So, they are trying to remain low key. We as an industry are still trying to work our way through this.”

Kelly said MIG is lobbying big time to get this issue addressed on the federal level, but, as negotiations are ongoing, she was reluctant to go into specifics.

“There are multiple, concurrent efforts to resolve the banking issue,” is all Kelly would say. And the banks both she and Lacroux named did not respond to attempts to solicit comment.

But reform may not be soon. Just this week, Congressman Ed Perlmutter (D-Colo.), at a meeting of the House Financial Services Committee, offered an amendment that would have prevented federal authorities for punishing banks just for working with legal marijuana businesses.

According to, Republican congressional leadership blocked the measure, which would have allowed marijuana businesses to deposit their profits in banks, on a procedural point.

The new banking measure’s fate marks the second time in recent days that House Republican leaders have prevented cannabis-related financial measures from even being voted on, according to

In response, Perlmutter tweeted, “This week, I tried yet again to offer a solution to the marijuana banking crisis. Unfortunately, my amendment was not included in the final bill. This is an issue of public safety and I will continue to press the issue at every opportunity.”

‘Extremely Hypocritical’

The banking challenges that have dogged Lacroux, his business partner and his businesses for over six months chafe his hide badly enough that his jaw clenches and his face reddens when he talks about it.

“It is extremely hypocritical for a local bank to refuse to do business with us because we have applied for and been granted a license to open a retail medical marijuana business in downtown Basalt,” he said. “I wonder what percentage of the businesses in the Roaring Fork Valley are associated either directly or indirectly with the pot industry.

“There were three advertisements in today’s paper for pot businesses. Does the bank where the paper does business refuse to accept the checks that came from those businesses?”

He noted that he and his partner paid the town of Basalt $2,500 just to apply for the retail medical marijuana license. Where does the municipality bank? he asked.

“What about employees of the various grow operations in the valley?” he said. “They deposit their paychecks. And there are many vendors that work with the marijuana industry. The local growers, they pay electric bills. Does Holy Cross Electric have issues with its bank? I don’t think so.”

But, as Kelly indicated, it’s up to each bank to feel comfortable with the legal veracity of its clients. Those banks are legally compelled to file regular reports with the feds. And if there are issues, the feds can very well rain hellfire down upon the offending bank and its employees.

“Until the federal government legalizes marijuana, there will continue to be issues of consistency and compliance,” Kelly said.

In the meantime, Lacroux and his partner are hoping to open their medical marijuana retail operation in downtown Basalt sometime this year.

Content originally published by the Aspen Daily News on November 23, 2017.
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