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Hash or Credit? Why Banks Should Cash In on the Marijuana Industry

by Hannah Leone, published

marijuana industry and banking

United States Representative Jared Polis (D-CO) discussed the banking restriction on legal marijuana businesses in a video interview with Fox Business News on March 15.

Major banks reject marijuana businesses as clients and won't even allow legal dispensaries to open bank accounts. These banks do not want to face the repercussions of defying federal law by participating in business transactions which contradict federal policy, he said in the interview.

In an analysis of Amendment 64, the Colorado Center on Law and Policy estimates that regulating marijuana like alcohol can generate $60 million a year in revenue and savings for  Colorado.

According to an August 2012 fiscal report for Washington State Initiative 502, the estimated total revenue generated to Washington state could be more than $1.9 billion over five fiscal years assuming a fully functioning marijuana market.

The problem is, Washington's newly legalized marijuana industry is not fully functioning. Neither is Colorado's, although both states are moving forward in efforts to best regulate the newly legalized industry.

There is a conflict between state and federal laws, which Polis told Fox he seeks to resolve.

Washington state Governor Jay Inslee met with Attorney General Eric Holder on Jan. 22 to seek clarification about what the federal government's role in state legalization will be.  The Department of Justice is still reviewing both Washington and Colorado’s legalization laws and has not made a decision regarding their course of action, according to the Washington State Liquor Control Board's website. Inslee’s office will maintain an open dialogue with the federal government, according to the website.

A Colorado task force recently published a 100-page document of recommendations for the state's marijuana policy. The “State of Colorado Task Force Report on the Implementation of Amendment 64” outlines best practices for industry oversight, funding and enforcement, consumer protection, and youth prevention and treatment programs.

In the report, released March 13, members discuss the issue of legal marijuana business people being unable to use federal banks for their businesses because Colorado’s marijuana legalization contradicts federal law. Federally licensed or insured financial institutions must comply with federal regulations, so federal banks cannot legally support the recreational marijuana business, the task force wrote.

This is an issue Washington confronts as well, and an issue that needs a solution as more states move toward legalization.

Without a way to legally bank, people in the marijuana business face more safety issues and the challenge of regulating a cash-based revenue system.  To combat this, the task force suggested exemptions for legal marijuana businesses in Colorado to be able to legally use federally-insured banks, credit unions and other financial institutions, or the creation of a local financial institution that is not subject to federal regulation.

If marijuana businesses were allowed to use federal banks, the banks would stand to benefit from the profits of an industry that is only growing.

Banks need deposits so they have money to lend borrowers at higher interest rates than they're paying their depositors. An entire industry's worth of depositors can mean both extra security and the potential to lend more and earn more. Banks could also profit from fees, charges and investments in legal marijuana businesses.

So, how should our federal banks cash in on this "pot of gold?"

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