Rise of Recreational Marijuana Market Could Usher in Banking Changes

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The marijuana industry could get help on one of its thorniest problems – banking – in an indirect way from the emergence of the adult-use cannabis markets in Colorado and Washington.

Both states are set to begin accepting applications for marijuana business licenses soon, meaning they’ll also start collecting hundreds of thousands of dollars in fees. Once adult-use businesses are up and running early next year, the states will also collect millions of dollars in taxes on recreational marijuana sales.

Colorado and Washington have to put that money somewhere. So they’ll need banks willing to accept money tied to recreational marijuana.

If major banks agree to accept such deposits from states – and it appears that will indeed happen – there’s a chance they could eventually loosen up their policies toward cannabis businesses. Even if major banks don’t start offering the marijuana companies accounts, this could be just enough encouragement to convince smaller financial institutions to start catering to the industry.

The recent announcement from the Department of Justice detailing a hands-off approach to state-legal recreational marijuana markets will likely relieve pressure on banks as well, giving them another reason to reassess their approach to the cannabis business.

“Frankly, the real opportunity exists right now,” said Steve Fox, chief lobbyist for the National Cannabis Industry Association. “For a financial institution reading the tea leaves, it is clear that the Department of Justice has no intention of bringing charges against a financial institution helping cannabis businesses comply with state regulations. A financial institution making its banking services available to the industry today, could have hundreds of customers and tens of millions of dollars worth of accounts very quickly.”

At this point, it appears both Colorado and Washington have banking partners willing to accept state deposits related to recreational marijuana.

Washington State said this week that it has the go-ahead from its main financial institution – Bank of America – to deposit money gleaned from the application and licensing fees and taxes it collects via the recreational program.

Colorado feels it’s in the clear, too.

The state’s Department of Revenue (DOR) currently uses Wells Fargo, “and they have never questioned where the tax money comes from,” said Daria Serna, communications director for the agency.

“DOR collects tax money for the entire state and when depositing money it is not separated by industry, county, etc.,” Serna said.

But therein lies one of the challenges: Banks could use a separate justification for accepting marijuana-related deposits from states vs. those from businesses.

“I would like to think that this willingness on the part of Bank of America to accept Washington tax revenues will lead directly to Bank of America opening up to cannabis businesses,” Fox said. “But, more likely, it will be described as a unique circumstance, based on the money coming from the state of Washington co-mingled with other funds.”

Most banks likely won’t rethink their policies until there is change at the federal level, seeing it as too risky until they get the all-clear from the government. So even if some financial institutions become marijuana-friendly, don’t expect the situation to completely improve overnight.

The good news is that significant change could finally be on the horizon.

Fox believes that the federal government – most notably the Department of Justice and the Treasury – is gearing up to move on the situation. Getting two major banks to accept state deposits tied to recreational marijuana could help further pressure the Obama administration to craft a solution.

“If I had to guess, I would say that in 2-6 months, (the government) will issue guidance that provides financial institutions the confidence they need to work with cannabis businesses,” Fox said. “Then, a number of financial institutions will take advantage of the opportunity.”