Pot vendors will have to continue dealing in cash for sometime yet.
The production and sale of marijuana occupies a strange place within the legal framework of the United States. On the one hand, several states have legalized the sale and consumption of marijuana. On the other, marijuana is classified as a Schedule 1 drug- the most damaging and addictive- alongside heroin, cocaine, and LSD.
Many thought the main difficulty would be ensuring the drug didn’t cross state boundaries into areas where it was still prohibited. However, a new stumbling block as arisen: banking.
Financial institutions were hesitant to provide services to pot sellers, fearing repercussions for dealing with drug money. One brave bank, the Fourth Corner Credit Union of Denver, Colorado stepped up to fill the gap. In November, the bank applied to the Federal Reserve for a ‘master account’. This would allow the Fourth Corner Credit Union to act as a liaison between the state-licensed pot vendors and national financial institutions.
Banking regulators said no.
In response, the credit union has filed a lawsuit against the Federal Reserve, claiming that it was denied equal access to the financial system.
“I felt all along like they were trying to figure out a way to deny our application,” said Mark Mason, a leader in the credit union. “Now, a federal judge who is only concerned in applying the law can make the decision.”
The Colorado state government has given its full support to the lawsuit. Their argument is that denying the industry access to financial institutions will have a damaging effect on the state’s economy. It will hinder efforts to collect taxes as well as encourage money-laundering.
“We thought it was a good solution to the problem,” said Andrew Freedman, the state director of marijuana coordination. “Here was a place willing to take on the risk of banking this underbanked group — and that could do rigorous compliance.”
Part of the reasoning behind the Fed’s decision is that the credit union would not be eligible for insurance- a necessity in the post-Great Recession banking sector. The Fourth Corner Credit Union has not proven how it would “mitigate the risk associated with serving a single industry that does not have an established track record of success and remains illegal at the federal level.”
Until these issues are resolved, the legal pot industry will be stuck dealing in the same currency as its nefarious counterparts: cold hard cash.