By John Schroyer and Tony C. Dreibus
Washington State sets up a process to work with Native American tribes interested in marijuana, large banks reveal why they won’t touch the cannabis industry, and an Ohio legalization campaign gets a big-name backer – as well as some more money for its enormous war chest.
Here’s a closer look at several notable developments in the marijuana industry over the past week.
With a bill signed into law this week, Washington has become one of the first states in the nation to establish a general framework for folding Native American tribes into its marijuana program.
This could serve as a blueprint for officials in other markets where tribes are interested in growing and selling cannabis, provided Washington can cement pacts with Native American leaders.
It makes sense for states with heavily regulated cannabis industries to attempt to work with tribes rather than leave them to develop their own marijuana infrastructure.
States “don’t want any outside influences that have better prices (and) better rates,” nor do they want to compete with tribes for tax revenue from marijuana sales, said Hilary Bricken, an attorney with Seattle-based Canna Law Group.
“If you’ve got a well-oiled machine like a tribe that’s undermining (state tax revenue), you may want to bring them into the fold rather than compete with them,” Bricken said.
Still, it remains to be seen whether tribes will opt for working with Washington State officials or simply set up their own operations on their lands, keeping their sales and income exempt from state interference.
“For the tribes that don’t want to participate… and maybe keep it within tribal lands, or start a casino that allows cannabis smoking, that still could have a tremendous impact on the cannabis economy, because it will inevitably be more competitive,” Bricken said.
At least three tribes that have already expressed an interest in growing and selling marijuana via Washington’s established regulatory system.
Banks Say No Thanks
It’s well known that large banks won’t work with the cannabis industry – and now it appears they aren’t even exploring the option.
Officials from Citigroup, JPMorgan Chase, KeyCorp. and Wells Fargo said they won’t touch the cannabis industry because it’s still federally illegal, even though the marijuana sector is burgeoning.
An executive with KeyCorp. said his bank hasn’t even explored the issue with regulators, while the CEO of Wells Fargo said marijuana banking isn’t on his radar at all.
Cannabis businesses will therefore have to rely on community banks or credit unions for the foreseeable future. And even these financial institutions could reverse course.
“At its core, banking this industry comes down to risk versus reward,” said Mark Goldfogel, the executive vice president of Fourth Corner Credit Union, a Colorado company that has been waiting for regulatory approval from the U.S. Federal Reserve for months so it can open. “Some smaller institutions have, and will continue to support the industry, but many will grow weary of the regulation and compliance burden heaped only on this market.”
To Goldfogel’s point: Mbank, an Oregon financial institution, decided last month to end relationships with all of its cannabis customers.
The problem will continue as long as marijuana is still a Schedule I drug. Many banks that venture into the industry will likely exit quickly unless they go all-in, Goldfogel said.
“Specialization and focus will enable a few institutions to thrive in this industry,” he said, “but it will take time and dedication for those systems to become entrenched and many banks may enter and exit this market before it is settled.”
Seeing Green in Ohio
A group looking to legalize medical and recreational marijuana in Ohio this November has picked up more momentum.
As we wrote about earlier this week, a prominent former attorney for grocery store giant Kroger has joined the ranks of investors in the campaign, adding another prominent name to the list of backers.
Though it’s not clear exactly how much the campaign has raised, the tally was already at $36 million in March.
That’s likely a record-breaking amount for a state campaign to legalize marijuana. Groups behind the successful legalization attempts in Alaska, Colorado, Oregon and Washington State netted far less.
Paul Heldman, who was the top Kroger attorney for 25 years, joins several other prominent businesspeople in backing ResponsibleOhio.
His involvement indicates that the group’s strategy of appealing straight to wealthy investors is gaining more traction.
Investors such as Heldman stand to gain a lot if the measure succeeds. ResponsibleOhio estimates that marijuana sales in Ohio could reach $2.2 billion a year by 2020, and the campaign’s primary financial backers will have ownership stakes in the only 10 cultivation facilities that would be permitted under the terms of the measure.
The campaign also announced on Wednesday that it has already gathered 320,000 signatures and is expecting to top out at 750,000. It only needs roughly 306,000 signatures by July to qualify for the 2015 ballot.
So the only question remains, will the campaign be able to turn the corner in November? A Quinnipiac University poll released last month found that while 84% of voters support MMJ, only 52% support full legalization.
With low voter turnout likely in such an off-year election, ResponsibleOhio might still face a sizable uphill battle.
John Schroyer can be reached at email@example.com
Tony C. Dreibus can be reached at firstname.lastname@example.org