Will the banking industry allow marijuana transactions?

The financial and marijuana industries appear to still be digesting comments made last week by U.S. Attorney General Eric Holder, who said that legal marijuana businesses should have access to the banking system.

Speaking during an event at the University of Virginia, Holder said the Department of Justice would soon unveil proposed regulations regarding such transactions.

While using marijuana remains a crime under federal law, 20 states and the District of Columbia have legalized the medical use of cannabis. And earlier this month, Colorado and Washington state made the recreational use of marijuana legal for adults.

 Holder said the move is “an attempt to deal with a reality that exists in these states,” and to reduce the cash-only system many marijuana businesses are forced to use.

“There’s a public safety component to this,” he added. “Huge amounts of cash, substantial amounts of cash just kind of lying around with no place for it to be appropriately deposited, is something that would worry me, just from a law enforcement perspective.”

Holder's remarks are getting mixed reviews from cannabis businesses in Denver.

“The news is wonderful,” said Elliot Klug, CEO and partner of Pink House, a medical marijuana company with seven retail stores and five production facilities in Colorado. “The sooner it is on paper, the better. It will be a boon and a relief when full banking is authorized. We are spending so much time handling cash it has become almost ridiculous.”

Klug believes the change would not only reduce the financial uncertainty his industry faces but would further increase investment opportunities in cannabis.

But Kayvan Khalatbari, co-owner of the Denver Relief medical marijuana facility, remains skeptical.

"Is it a sign that this industry is well on its way to becoming legitimate in the eyes of the Feds? Yes,” he said, “but talk is cheap, and both [Holder and President Barack Obama] have a history of saying one thing and doing another, so I won't hold my breath.”

There's also the question of what the major credit card companies would do if banks start to allow marijuana companies to open accounts and have normal transactions.

“We prohibit the use of the card for marijuana transactions and adhere to federal law in such matters,” said Sanette Chao, director of corporate affairs and communications at American Express (AXP).

Although Amex doesn't have a separate policy for businesses that provide ancillary goods and services to marijuana sellers, Chao notes the company does ban unlawful transactions and reserves the right “to terminate merchant contracts that are harmful to our brand or have high levels of card member credit losses and customer service disputes.”

 Experts who have watched the cannabis industry evolve believe the credit card companies will follow the banks' lead, should the federal government chose to change the law or, at least, look the other way.

“If all of this is cleared on a federal basis, then it will just be viewed as any other transaction that goes through their process,” said Mac Clouse, a professor of finance at the University of Denver's Daniels College of Business.

Clouse also believes this has become a fairness issue, with states where residents voted to legalize marijuana for medical and recreational wanting their local laws to be upheld.

“If you vote to make this product legal, then [the marijuana businesses] shouldn't be at a disadvantage in dealing with general business practices compared to all other businesses,” he added. “You're either going to legalize it and let them be a viable business, or not. Don't try to put them somewhere in between, where it just makes them have more risks than any other small business.“

  • Bruce Kennedy

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