Colorado’s attempt to create a bank to service its marijuana industry has suffered another setback by the federal government and could be facing an impossible dilemma. The Federal Reserve said in a court filing on Wednesday that it will not accept any money that comes from the sale of marijuana as long as it remains a schedule 1 drug and remains illegal under federal law.
This new filing comes as a direct contradiction to the U.S. Treasury Department which issued rules for how banks can accept money made from legal cannabis (medical marijuana) sales. In their filing, the Fed. Reserve said “transporting or transmitting funds known to have derived from the distribution of marijuana is illegal.”
“We’re frustrated,” said Andrew Freedman, director of marijuana coordination for Colorado Gov. John Hickenlooper. “We tried to do the most with the building blocks of instructions they sent us, set up the most rigorous solution. And we still are left with confusion.”
Last year the Fourth Corner Credit Union was formed to handle Colorado’s 700 million dollar a year marijuana industry, without a clearance from the Federal Reserve, the credit union can’t open. Colorado founded the union after the Treasury Department issued it’s their rules last year on marijuana banking. Fourth Corner was founded to give the cannabis industry a safe place to bank, while paying the steep fees to circumvent the road blocks set up by the Treasury Department.
In order to access the national banking system and perform electronic transactions, the credit union needed permission from the Federal Reserve, with out their compliance, legal banking cannot be done. The credit union now wants a federal judge to step in and order the Federal Reserve to change its mind.
The Federal Reserve is standing in the way of the Treasury Department who stated in their ruling their goal was to “enhance the availability of financial services for, and the financial transparency of, marijuana-related businesses.” By allowing money from the legal cannabis industry to join funds from other commerce, the Federal Reserve would be removing one of the final stigmas to marijuana acceptance. If the banking system allows proceeds from sales of legal marijuana to join the banking system, the Federal Government could no longer claim to consider marijuana illegal.
The Federal Reserve said in the latest filing that bankers won’t be led away in handcuffs for taking marijuana money, but they don’t have the right to put that money in the Federal Reserve. By pushing for approval from the Federal Reserve, it was “as if Colorado enacted a scheme to allow trade in endangered species or trade with North Korea,” the filing says.
Many shops in Colorado (and other states where marijuana is legal) still operate in cash, unable to accept credit cards or make other electronic transactions. “We’re still a Schedule I narcotic at the federal level,” said Tyler Henson of the Colorado Cannabis Chamber of Commerce, which represents pot growers and retailers. “We can provide every Band-Aid imaginable at the state level, but until the federal government acts on this, we’re stuck.”
“It’s a phenomenal question about executive action,” said Peter Conti-Brown, a lawyer and banking historian at the University of Pennsylvania who is following the case. Deirdra A. O’Gorman, CEO of Fourth Corner Credit Union, said she’s more optimistic. A Federal Reserve account does not mean it is legitimizing an illegal industry, she said. “We’ll be able to figure this out sooner rather than later,” O’Gorman said. Conti-Brown, is doubtful. “I don’t think the lawsuit is going to go anywhere,” he said.
The presiding judge in the case, U.S. District Judge R. Brooke Jackson in Denver, has given no indication when he’ll decide whether to hear the complaint filed by Fourth Corner.
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