Medical marijuana proponents watched in earnest on Tuesday as their only hope this year for a formal banking and payment system went up in smoke.
Senate Bill 75, sponsored by Sen. Pat Steadman, D-Denver, would have created the authority for licensed medical marijuana stakeholders to form an exclusive financial cooperative specific to the industry, but the Senate Finance Committee killed the legislation on a 5-2 vote.
The proposal stemmed from woes experienced by medical cannabis business owners who have reported problems with opening and maintaining bank accounts since voters in 2000 amended the state constitution to allow medical cannabis use. Because it is required that banks be federally insured, and because medical cannabis remains illegal at the federal level, banks have refused to take on cannabis businesses over fears of seizures by the federal government.
Jennifer Waller, vice president of the Colorado Bankers Association, said at the hearing that while many bankers would love to accept the industry’s money at their facilities, no state legislation would comfortably allow them to take the risk until the issue is resolved at the federal level.
“We do understand and sympathize that this is a very real problem, but we do not feel the bill is a solution,” said Waller. “We don’t think there can be an adequate resolution to the challenge of banking the medical marijuana industry until there is a resolution towards this on the federal level.”
Congressman Jared Polis, D-Boulder, is working on a fix at the national level that would open financial services for medical marijuana businesses, but prospects are remote. Steadman acknowledged that his legislation likely wouldn’t solve the problem without federal cooperation, but he said he still wanted to at least start the conversation.
“This was my best attempt,” a downbeat Steadman said just prior to the committee’s vote. “With or without this I think there’s still going to be problems, and despite all of our thoughtful questions and all of the testimony and all of the people that showed up, I don’t know that we really can solve this problem.”
Law enforcement officials and prosecutors agreed, lining up to testify against SB 75.
“The sale and possession of medical marijuana is against federal law. Yes, we have Amendment 20 in our state constitution that deals with medical marijuana… but we believe the intent of this amendment has been perverted to the degree that it is no longer for compassionate medical use,” testified Chief John Jackson, spokesman for the Colorado Association of Chiefs of Police. The Colorado Drug Investigators Association, the Colorado attorney general’s office and the Colorado District Attorneys’ Council joined Jackson in opposition.
A ‘joint’ concern
Beyond simply violating federal law, concerns were also raised over the effectiveness of the legislation itself. Because access to federally insured banking reserves would still be out of reach for the financial cooperatives, the cooperatives themselves would potentially be sitting on millions of dollars worth of cash, likely kept in large safes at a determined facility. The idea struck Sen. Keith King, R-Colorado Springs, as odd, who quipped, “They’d better have machine guns.”
The legislation also left it uncertain whether the cooperatives would be able to issue checking accounts or establish a credit system for its members. The cooperatives would have been responsible for establishing a banking system, but in the end, the possibility remained that they would still be dealing in only cash.
Fred Joseph, the state’s banking and securities commissioner, agreed that the cooperatives would have a difficult time with a payment system.
“The financial coops would not be able to access these [payment] systems because they’re also dealing with the same issues at the federal level, that it’s a crime on the federal level,” stated Joseph.
Another significant problem with the legislation was the prospect that the Department of Regulatory Agencies would not be able to regulate the banking system. Colorado is entered into a joint charter with the federal government that requires banks and financial cooperatives to be insured. Insurers are unwilling to stand behind medical marijuana businesses over fears of federal action, so DORA would be violating its joint charter by regulating the uninsured coops.
“You would put the Division in a situation where it would have to comply with state law but violate federal law,” said Chris Myklebust, commissioner of the Division of Financial Services.
Mike Dougherty, deputy attorney general for the Criminal Justice Section, raised an interesting concern over personal asset seizures. Dougherty believes that the financial cooperatives would have given members a false sense of security that their deposits would be secured, encouraging some to make not only business deposits, but personal and family deposits as well. He pointed out that the federal government could still seize those deposits, including personal wealth.
“We, as government, have an obligation to protect the money of investors in Colorado, I don’t think it’s buyer beware…” said Dougherty. “I don’t know how we allow that to happen to the investors of Colorado. I understand that there’s a problem, but I don’t think this is the solution.”
Supporters of the bill scoffed at the concern, arguing that the coops would be established simply as a means to make business deposits, not to become a credit union for personal wealth. The overall point made by proponents was that the issue was really a safety and accountability concern — not a financial concern — noting that large piles of cash stored at a business location only encourages robberies and violence.
“There are people here even in this room who I know have been victims of crime because of this very issue…” said Mike Elliott, executive director of the Medical Marijuana Industry Group, a Colorado-based trade association for the medical cannabis industry. “This is not something that people want to talk about, that they’re dealing in large amounts of cash.”
Only two senators on the Finance Committee agreed with supporters, including Sens. Mike Johnston, D-Denver, and Lucia Guzman, D-Denver. Guzman questioned why the committee wouldn’t just move forward with the legislation to at least attempt to solve the problem.
“I do have some of these businesses in my Senate district — very, very good businesses,” she said. “If we’re not willing to find a way to help study how these small businesses can have some formal banking opportunity, what’s going to happen if there’s a crime at one of these places?”