Peninsula Daily News and The Associated Press
At least one North Olympic Peninsula financial institution may be only weeks away from doing business with the newly legal marijuana industry after federal officials issued guidelines to clear hurdles that had been in the way.
“It all comes down to understanding local laws,” said Larry Hueth, president and CEO of Port Angeles-based First Federal.
“We’re going to be looking over the next couple of weeks to see exactly what it means.”
He said he is optimistic that the bank will be able to open accounts with legal pot stores.
“We should be able to start doing business in a short while,” Hueth said.
Guidance issued by the Justice and Treasury departments Friday is the latest step by the federal government toward enabling a legalized marijuana industry to operate in states that approve it.
The Obama administration has given banks a road map for conducting transactions with legal marijuana sellers, which now must operate on a cash-only basis, so these new businesses can stash away savings, make payroll and pay taxes like any other enterprise.
“It’s important, I think, that they have that access to banking,” Hueth said of marijuana entrepreneurs.
“All we needed was guidelines,” he said.
The guidelines do not carry the force of law, and the American Bankers Association issued a statement in response saying that guidance is not enough.
Scott Jarvis, director of the state Department of Financial Institutions, told The Seattle Times that banks that operate only in Washington state, like First Federal, may have an easier time dealing with the marijuana industry than those with branches across the country.
The intent of the federal move is to make banks feel more comfortable working with marijuana businesses that are licensed and regulated.
Others have a keen interest, too, in a regulated financial pipeline for an industry that is just emerging from the underground.
Marijuana businesses that can’t use banks may have too much cash they can’t safely put away, leaving them vulnerable to criminals.
A medical marijuana dispensary in Port Townsend was burglarized of thousands of dollars’ worth of marijuana and other marijuana-infused products in late January the day a Peninsula Daily News report about banking regulations and pot stores mentioned the owner, Gracen Hook.
Governments that allow marijuana sales want a channel to receive taxes.
But a leading financial services trade group immediately expressed misgivings, and others, too, said the guidelines don’t go far enough in protecting banks.
“After a series of red lights, we expected this guidance to be a yellow one,” said Don Childears, president and CEO of the Colorado Bankers Association.
“This isn’t close to that. At best, this amounts to ‘serve these customers at your own risk,’ and it emphasizes all of the risks. This light is red.”
Washington and Colorado in 2012 became the first states to approve recreational use of marijuana. A group is hoping to make Alaska the third state in the nation to do so.
Currently, processing money from marijuana sales puts federally insured banks at risk of drug racketeering charges, so many have refused to open accounts for marijuana-related businesses.
The federal Drug Enforcement Administration classes marijuana as a Schedule I drug, considered among the most dangerous on par with heroin, ecstasy and peyote.
“In essence, we would be laundering money as the law looks at it,” Hueth said in January.
Friday’s move was designed to let financial institutions serve such businesses while ensuring that they know their customers’ legitimacy and remain obligated to report possible criminal activity, said the Treasury Department’s Financial Crimes Enforcement Network, or FinCEN.
But the American Bankers Association said “guidance or regulation doesn’t alter the underlying challenge for banks.
“As it stands, possession or distribution of marijuana violates federal law, and banks that provide support for those activities face the risk of prosecution and assorted sanctions.”
The group says banks will be comfortable serving marijuana businesses only if federal prohibitions on the drug are changed in law.
Denny Eliason, a lobbyist for the Washington Bankers Association, said it will take some time before banks decide whether to take advantage of the guidance.
He called it a good first step but said it sets forth a complicated process for the banks to follow — for example, by filing suspicious activity reports designated “marijuana limited” in the case of businesses that seem to be complying with the rules and “marijuana priority” for those acting questionably.
“They’ll have to have a real awareness of the activities of their customers,” he said.
State banking regulators in Colorado and Washington appear to believe that mainly small and medium-sized banks will be interested in handling financial transactions with legal marijuana stores, not the big ones, a FinCEN official said, speaking only on condition of anonymity to talk about internal deliberations.
“This is a decision that each financial institution needs to make on its own,” the official said.
FinCEN writes the rules that U.S. financial institutions must follow to help protect the system from money laundering and the financing of terrorism.
The office said it expects financial institutions to perform thorough customer due diligence on marijuana businesses and file reports that will be valuable to law enforcement.
Under the guidance, banks must review state license applications for marijuana customers, request information about the business, develop an understanding of the types of products to be sold and monitor publicly available sources for any negative information about the business.
Asked about the conflict in federal and state laws on marijuana use, the official said the agency sought to balance competing interests.
One of them is the concern about having so much cash on the street without an ability to get those funds into the safety of a bank.
The guidance provided the banks with more than 20 “red flags” that may indicate a violation of federal law.
Among them: if a business receives substantially more revenue than its local competitors, deposits more cash than is in line with the amount of marijuana-related revenue it is reporting for federal and state tax purposes, or experiences a surge in activity by third parties offering goods or services such as equipment suppliers or shipping services.
If a marijuana-related business is seen engaging in international or interstate activity, such as the receipt of cash deposits from locations outside the state, that’s a red flag, too.