Since weed was legalized here in 2012, much has been written about the industry's banking problem. Headlines described retail pot shops as sitting targets because they were supposedly filled with millions of dollars in cash, and owners having nowhere to stash it. That may have been the case in the first few years, but the most current records available show an active relationship has blossomed between Washington's banks and the bud industry.
In February of 2014, the number of banking institutions working with the weed industry nationwide was 15 total. As of September of 2016, the number had grown to 311, according to internal reviews conducted by the US Department of the Treasury obtained through a records request by The Stranger. These days, 95 percent of marijuana-excise-tax payments paid to the state come in a form other than cash, according to Washington State Liquor and Cannabis Board (WSLCB) spokesperson Brian Smith.
In fact, because of the sheer scale of weed taxes—our state has collected more than $20 million in weed taxes each month since July of last year, according to 502Data.com—the WSLCB recently stopped allowing weed businesses to pay their taxes in cash, unless the business could prove it couldn't get bank services.
"It's dangerous to have that amount of money come through in the form of cash," said Smith. "It takes time for someone to count the money and observe it. There is more opportunity for human error when you are counting money that comes in a stack or a handful, which is often what takes place."
However, that doesn't mean 95 percent of cannabis businesses necessarily have checking accounts; businesses can turn cash into money orders to pay taxes, which do not require a bank account. But the data does show a growing relationship between banks and the bud industry.
Joseph Vincent, the director of legal and regulatory affairs for the state's Department of Financial Institutions, said the state knows of about 12 financial institutions that are doing business with the cannabis industry, with three credit unions and two banks holding the majority of the accounts. Vincent said the state appealed directly to the executives of these state-chartered financial institutions to encourage them to take cannabis cash.
"We felt that it was incumbent on us as a public-safety concern to establish some banking relationships for marijuana-related businesses and stop this from being an all-cash business," Vincent said.
Spokane's Numerica Credit Union has more than 200 cannabis business accounts, according to spokesperson Kelli Hawkins. Hawkins said the credit union's board of directors decided to do business with the weed industry because they felt weed businesses holding millions of dollars in cash on location would become a safety issue.
"Obviously we didn't make the decision lightly. We had long conversations about the risks, and our board of directors felt it was about ensuring the safety of the community," Hawkins said. "We needed to make sure that these businesses that are in the towns we serve would have a safe place to deposit their cash."
Carmella Houston, a spokesperson for Salal Credit Union, said their Seattle offices were inundated with more than 2,000 calls when people first learned that they were accepting cannabis businesses. Houston said they have opened 300 cannabis business accounts since June of 2014 and cannabis checking accounts could form up to 80 percent of the credit union's net worth.
"We actually turn down more accounts than we open," Houston said. "We are very particular about the business accounts we accept. They need to be professional business people with strong business acumen who are willing to follow all of the guidelines that have been put forth."
Salal's hesitancy to open an account for any cannabis entrepreneur who walks in the door is because the federal government currently puts a heavy burden on these financial institutions to make sure their weed-related business accounts are complying with all state laws. In February of 2014, just as Colorado and Washington were setting up their regulated weed markets, the US Department of the Treasury's Financial Crimes Enforcement Network (FinCEN) released a written guidance saying that they would not charge a bank with federal crimes for accepting weed money if the financial institution made sure that the business was following all state laws and the directives of a previous memo from the Department of Justice. That memo, frequently referred to as the Cole Memo, said the federal government would take a hands-off approach to states with legal weed if those states kept the drugs out of the hands of kids, kept weed within their states, and kept profits from drugs sales away from organized crime.
Both documents are legal memos that do not change the federal government's prohibition of weed. They do not establish any legal precedent, and they can be rescinded by the Trump administration at any time.
The FinCEN guidance creates a very different type of banking relationship for cannabis businesses as compared to most other businesses. For example, if a bank or credit union wants to do business with a brewery, they would need to make sure the brewery has all its required licenses and permits, but they would not need to make sure the brewery is keeping its beer out of the hands of kids. The bank can simply rely on the normal state and local regulators to make sure the brewery is following all relevant laws. Robert Rowe, vice president and chief legal counsel for the American Bankers Association, the largest financial trade association in the country, said this responsibility makes banks nervous.
"It flips the responsibility back on the bank, which is something a little different from most relationships," Rowe said. "One banker said the only way he could feel comfortable is if he had an employee embedded in that business 24/7."
Hawkins said Numerica reviews a business's application with the WSLCB before accepting the account, and then the credit union regularly monitors its banking activity.
"We know by working closely with the WSLCB and the business that they are adhering to the priorities of the Cole Memo," Hawkins said. "We do site visits to make sure they have processes and procedures at their business to adhere to those rules."
One part of those FinCEN rules is that banks file regular reports tracking activity with cannabis-related businesses. These reports are called suspicious activity reports and provide a clear picture of the banking activity of the industry. The actual reports are confidential, but The Stranger was able to obtain official summaries of these reports through a public records request. These summaries, filed quarterly every year since 2014, show a growing amount of business between banks and cannabis businesses.
That doesn't mean the entire banking industry is clamoring for cannabis accounts. Weed businesses represent a risk to any banking institution because federal law still prohibits growing or selling weed. The only thing standing in between a bank accepting cannabis cash and getting shut down by federal money-laundering laws is that one discretionary legal guidance issued by the Department of the Treasury in 2014.
Such risk has kept the big nationwide banks out of the cannabis game, leaving smaller state-chartered banks and credit unions to pick up the extra business. It is still the case that not every financial institution is willing to take the risks associated with this line of business. Rowe said it will take Congress changing federal laws, not just two legal memos, for the entire banking industry to take cannabis cash.
"As far as the banks are concerned, we just don't feel that it eases the risks enough or eliminates the risk of us abetting criminal activity," Rowe said. "Without knowing that we aren't going to be prosecuted, it's just too risky."
There have been glimmers of hope recently that the Trump administration may not crack down on legal weed, which has been a persistent anxiety for recreational industry leaders. Recently, Attorney General Jeff Sessions reaffirmed the Cole Memo's validity. But if the administration decides to look for an easy way to hurt the legal weed industry, they don't have to look any further than banking.
Simply rescinding the FinCEN guidance—without even conducting any investigations or police raids—would likely cause these credit unions to quickly cancel their accounts with cannabis businesses. Hawkins said Numerica watches federal policy closely for any hint of a change in tune.
"We still have to keep in mind that this is federally illegal," Hawkins said. "If there was a change to the attitude behind the Cole Memo, then we need to quickly pivot and release those assets."
Houston said Salal was prepared to do the same.
"Our regulators required us to have an exit strategy if that came about, but we're hoping that won't come about," Houston said.
Canceled accounts would cause a nightmare for every business in legal weed, especially the bigger players in the game, like Northwest Cannabis Solutions, the largest producer and processor of weed in the state by sales. Jerry Derevyanny, one of the company's executives, said running the enterprise—which has sold $30 million of weed products since it opened in 2014, according to 502Data.com—as an all-cash business would pose many challenges.
"It would be an operational challenge, and it would be a huge setback for us. We have more than 190 full-time employees," Derevyanny said. "Doing an all-cash payroll for 190 people is just a little bit crazy, and I really hope it doesn't come to that."