For marijuana businesses, perhaps nothing more than banking symbolizes their predicament: While a growing number of states are approving the sale of pot, marijuana remains illegal under federal law. That legal limbo has forced many businesses to operate largely on a cash-only basis because banks don’t want to take on the risk they would bring as customers. In a speech on Tuesday, a Treasury Department official is expected to say this might be changing, American Banker reported. Eight months after the sale of recreational pot was legalized in Colorado, more than 100 banks and credit unions throughout the U.S. are working with pot companies. That’s fewer than 1 percent of all U.S. banks and credit unions, but it’s a sign that marijuana merchants may not be iced out of the financial system.
Jennifer Shasky Calvery, director of the Treasury Department’s Financial Crimes Enforcement Network, is scheduled to speak at an anti-money laundering conference on Tuesday and will report that “105 banks and credit unions with connections to the pot business are located in states representing more than a third of the country,” according to American Banker, which got an advanced copy of Calvery’s speech. That’s about 20 percent more than the number operating in Colorado alone from June 2011 to September 2012—when the state was allowing medical pot sales but preceding an August 2013 memo from the Justice Department reiterating that marijuana is illegal under federal law.
That memo caused many banks to shutter marijuana accounts. Earlier this year, federal regulators tried to reassure banks that they could service marijuana customers if they follow certain procedures, such as filing special reports for transactions with pot business customers. The banks said the guidance fell short of the legal protection they need, namely an act of Congress.
Without regular banking access, pot merchants have had to work largely in cash. When I reported on Colorado’s newly-legal recreational pot business earlier this year, some marijuana merchants said they had found a workaround: dealing with banks that allowed them to open accounts. That was relatively rare. More frequently, pot sellers said, they maintained a few bank accounts under the radar, which they avoided using for large transactions so as not to trigger anti-money laundering alerts. These merchants handled the bulk of their business in cash, forcing them to added cumbersome procedures to safeguard money and staff. On tax day in February, Colorado stationed armed guards at the government office where dispensary owners had to hand over taxes due from the first month of recreational sales.
Even with more than 100 banks now open to conducting marijuana business, it’s not yet clear how stable the financial environment is. In her speech, Calvery will also report that since February, banks have filed 502 required reports that they are working with marijuana businesses that they believe to be following the law. At the same time, they have filed more than 475 reports saying that they’ve closed accounts held by pot entrepreneurs.