CASH CROP OR DIRTY MONEY ?

Bankers Worry About Medical Pot Deposits

Several Pueblo banks are among financial institutions statewide that
are refusing to accept business deposits from medical marijuana
dispensaries.

But a local lawyer representing three such local businesses said his
clients are doing business with banks, although he declined to say
which ones.

Tonight, the Pueblo City Council will consider two medical marijuana
ordinances, one to spell out a licensing procedure and the second to
establish zoning regulations for where those businesses can operate.

But depositing receipts in a business that may be largely one of cash
transactions has bankers worried. And the conflict between federal law
and the state's muddled marijuana statutes only contributes to the
problem.

Not to mention the stigma of accepting money from an industry that
many still feel is less than legitimate hurts the reputation of banks,
which are not enjoying their highest level of trust in the post
2008-economic environment.

Steve Strunk, the new commissioner of the Colorado Department of
Regulatory Agencies, Division of Banking, said the state has no
policies, nor recommendations, on the matter.

"We have not gone to that extent, to any business, to tell them who
and who cannot be their customers," he said Friday. "But banks are
concerned about their reputations."

In Pueblo, two prominent bank presidents said their institutions have
decided, either by national policy or local and state decision making,
to forego doing business with dispensaries. Six local dispensaries
have sales-tax licenses and 17 have applied for state licenses.

"We don't want any, thank you," said Priscilla Lucero, president of
the local Wells Fargo bank. "And it's corporate policy."

"We've opted not to do business with dispensaries," said Mike Cafasso,
president of the local American Bank of Commerce. "In the end, it's up
to (the Pueblo operation)."

"I brought concerns to the local banks (where his clients do business)
about federal problems and there will be mostly cash deposits," said
Jim Oliver, a lawyer who said he represents three dispensaries. "(The
bankers) said there were no concerns."

Cafasso said he has concerns, although his bank has no formal policy
at this time.

"I am in sympathy for those who need (medical marijuana). But I think
the whole thing has gotten away from the original intent of the law."

His personal feelings aside, Cafasso said there are many reasons why
his bank has shied away from doing business with dispensaries.

"On the reporting side, it's so cumbersome," he said of federal
regulations that require banks to report separately on deposits
amounting to $10,000 or more.

Cafasso said much of the deposited money would likely be in cash, and
that presents its own set of problems.

"How do we know if what is being deposited is within what the law
allows a dispensary to sell or to grow for its clients," he said.
"That could lead to money laundering."

By federal law, said Don Childers, president of the Colorado Bankers
Association, "banks have to know that deposits come from legal
activities."

"There are a lot of required guidelines around financial services,"
said Lucero. "And the level of cash transactions is bound to be heavy."

She said that another concern, that despite Colorado's medical
marijuana law -- placed into the state constitution in 2000 by voters
- -- it is different the federal laws, where marijuana remains illegal.

"Certainly banks work on the U.S. model, so they can obtain (Federal
Deposit Insurance Corp.) insurance for their customers," said Strunk.
"And federal law is opposed to medical marijuana. There is potential
for the feds to become upset if you have medical marijuana customers."

Wells Fargo's position on marijuana receipts has changed, according to
a recent story in the Colorado Springs Business Journal

"Paradoxically, before it took a closer look at the legal issues,
Wells Fargo was once known as the pot-friendly bank, according to
online blogs that serve as information hubs for the medical marijuana
industry," the Journal story said.

So the difference in state and federal laws, the potential of
time-consuming reporting of large deposits, the cash-heavy nature of
the business and the feeling by many that marijuana remains illegal
(as it is in federal law and state law, which aside from the medical
aspect, is still illegal) further complicates a complex issue.

Fifteen U.S. representatives, including Rep. Jared Polis, D-Boulder,
have signed a recent letter, to Timothy Geithner, secretary of the
Department of the Treasury, to formally issue a policy "assuring that
department priorities do not include targeting or pursing institutions
whose account holders are involved in a business ostensibly operating
in compliance with a state medical marijuana law."

Oliver said "all three of my clients have business banking
relationships. They are writing checks and paying their sales taxes
(through banks).

"I don't know if any have met with barriers. The bankers do not seem
to think federal regulations will be a concern," he said.

Strunk said he worked for a bank in Las Vegas which also refused to do
business with a heavily cash business that was also legal in places
and illegal in others, prostitution.

To illustrate the nature of the cash aspect in the marijuana business,
Childers told a story about a Colorado bank that had to increase fees
for its ATM machine, because the bank was located across from a dispensary.

"ATM withdrawals became a pain and they had to increase fees there
were so many at that bank," he said.