DENVER -- A Colorado credit union is hoping a federal judge will intervene to let the booming marijuana industry move its finances from cash-stuffed suitcases to the regulated banking system.
A pair of lawsuits filed in Denver this week challenge recent decisions by the U.S. Federal Reserve and the National Credit Union Administration to deny applications from Fourth Corner Credit Union.
The credit union was set up last year to serve Colorado's marijuana industry, but it needed permission from federal insurers and regulators before opening for business.
The Federal Reserve rejected Fourth Corner's application earlier this month. The decision means many pot businesses still use elaborate banking workarounds — from paying the power bill with money orders to spritzing skunky cash with Febreze to avoid scrutiny.
The U.S. Treasury Department issued guidelines last year for how banks could accept pot money. But many large banks considered the guidelines onerous and still won't take deposits related to marijuana businesses, prompting Colorado banking regulators to set up a proposed credit union to comply with those guidelines.
Fourth Corner would have allowed pot shops and growers to access not just basic checking but also lines of credit and other financial products the expanding industry wants.
"We thought it was a good model," said Andrew Freedman, marijuana adviser to Gov. John Hickenlooper. "It's an under-banked industry, and that's a problem not just for them but for the people of Colorado" because of the security risks of doing business in cash, he said.
The marijuana industry isn't completely without banking services. Some 400 financial institutions have filed thousands of marijuana-related reports with federal banking regulators in compliance with last year's guidance.
But many in the marijuana industry say they face significant hurdles, even fielding offers from shady entrepreneurs offering to fly their cash to another country to set up offshore accounts.
When a pot business wants to expand — perhaps by building a new warehouse or renovating a storefront — it typically has to find a cash investor willing to accept the risk of fronting money to a business that's illegal under federal law, usually in exchange for a steep interest rate.
"Everyone wants a solution because nobody wants to give their retail employee a paycheck, $1,500 in cash, and ask them to walk home with that late at night. It's just not safe."
"They have to pay a premium to get those banking services," said Tyler Henson, head of the Colorado Cannabis Chamber of Commerce, which represents pot growers and retailers as well as ancillary businesses such as grow-light manufacturers. "Everyone wants a solution because nobody wants to give their retail employee a paycheck, $1,500 in cash, and ask them to walk home with that late at night. It's just not safe."
But the National Credit Union Administration cited uncertainty about the marijuana business in declining Fourth Corner's application for deposit insurance. In a July 2 letter, the agency told the credit union that the marijuana industry "does not have an established track record of success and remains illegal at the federal level."
Two weeks later, the Federal Reserve rejected the credit union's application for a "master account," which Fourth Corner would need to interact with other financial institutions.
The credit union filed two lawsuits Thursday challenging the decisions. "The NCUA lacks expertise in the operation and regulation of the state legalized cannabis industry," the credit union argued in its complaint.
Representatives of the NCUA and Federal Reserve declined to comment Friday on the lawsuits.
Other federal agencies are starting to talk about the marijuana industry's finances, though.
The Internal Revenue Service released a memo Friday saying that a Washington state marijuana business owner could subtract state excise taxes on pot from the proceeds of selling it. Industry watchers interpreted it as an incremental step toward allowing pot business to claim business deductions currently off-limits to them.
And earlier this month, the Senate Appropriations Committee voted to amend a Financial Services spending bill to let banks provide financial services to state-legalized marijuana dispensaries. That amendment still faces a House vote.
Still, the nascent pot business was hoping an industry credit union could help mitigate the problem sooner. Taylor West, head of the National Cannabis Industry Association, said the frequent bank filings about dealings with the pot business are misleading.
"If you look at those filings, a lot of them are termination notices," West said.
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