Financial institutions in Washington state are anticipating federal guidance on how best to navigate the precarious issue of state law versus federal law in regard to allowing marijuana businesses access to traditional banking services.

That question has arisen following state voters’ approval last November of Initiative 502, which authorized possession of small amounts of marijuana for adults over the age of 21, and also the production, processing, and sale of marijuana. Budding entrepreneurs are now in the process of attaining the necessary licenses to grow, process, or sell marijuana. These businesses will have to decide how best to handle their finances, and may end up forced into cash-only transactions  if they are unable to find a bank or credit union willing to let them set up an account. 

Under the federal Controlled Substance Act of 1970, marijuana is classified as a Schedule 1 substance, on par with heroin and Ecstasy. U.S. Department of Justice statutes that are meant to prevent money laundering and other crimes prohibit banks from accepting businesses or individuals selling marijuana as clients, and also require them to report suspicious banking activity, such as large cash deposits. This statute also applies to medical-marijuana collectives, which have been legal in Washington since 1998. 

Not being able to open bank accounts presents a series of issues for marijuana collectives—and soon, retailers as well. Conducting business on an all-cash basis makes it difficult for collectives to do normal transactions, such as accepting credit, paying taxes, and paying employees. 

Allowing banks to accept marijuana businesses could lead to several benefits, says Scott Jarvis, director of the Washington State Department of Financial Institutions. For instance, it would make the businesses safer, as they wouldn’t have to have large amounts of cash around. 

“If you have large amounts of cash being moved around, you have safety involved,” he says. 

It also would be more convenient for the marijuana businesses themselves, Jarvis says, and would bring revenue from the industry into the banking system. 

Lynn Heider, spokeswoman for the Northwest Credit Union Association, says the issue is presenting a tough challenge to banks and credit unions.

“Here you have businesses that are legal in the state of Washington, and federal law makes it impossible for credit unions to allow them to bank,” Heider says. “Until that is cleared up, it would be a bad risk for a credit union to allow them to bank.”

Jarvis says that the state agency is hopeful for a resolution that will enable banks and credit unions to accept marijuana businesses as clients.

“What we’re hoping for is guidance that says pay attention, follow the rules, and then they can bank,” he says. “But when we’ll get it, I don’t know. Colorado is already selling product; we probably won’t sell product until around the first of July. That’s our time frame, I think.”

The Department of Justice hasn’t handed down its guidance for financial institutions in states that allow medical or recreational marijuana. Last August, Deputy U.S. Attorney General James Cole sent a memo to federal prosecutors nationwide, outlining the federal government’s top eight enforcement priorities in light of the two states legalizing recreational marijuana. They included preventing the distribution of the drug to minors and criminal enterprises, preventing sales in one state from getting to another, and preventing violence and driving under the influence. 

The memo also states that, outside of these priorities, the federal government relies on the states to address marijuana activity. As long as the states that have enacted laws legalizing the drug also have strong regulatory systems in place, the memo says, the federal government will leave primary enforcement to the states and local law enforcement. However, the memo didn’t address banking access. 

More recently, U.S. Attorney General Eric Holder Jr. commented last week that marijuana business should have access to the banking system, and that the government would soon offer guidance for them.  According to national media, the guidance is not expected to allow the businesses outright access to all banking services, but rather would tell federal prosecutors not to prioritize cases against marijuana businesses that use banks. 

Scott Fox, founder of Spokane marijuana collective Safe Alternative Medicine, or Sam’s, says that one of the biggest challenges for collectives and retailers is not being able to accept or use credit cards, debit cards, or checks. 

“We’re not able to get credit card [company] swipers; none of those places will do us. We can’t write checks, there’s nowhere to put money, and no way to pay employees,” he says. 

Fox also says he doesn’t see the problem being resolved in the near future.

“I doubt it’s going to change,” he says. 

Fox also says that he is looking into the possibility of accepting Bitcoin, a form of digital currency that has begun to gain significant popularity, instead of cash.

“It’s not something we want to do, but we’re being ignored so we have to find solutions,” he says.

Jesse Tilson, co-owner of Dr. Greenthumbs in Spokane Valley, says that he has heard negative stories about the few collectives that manage to find a bank that will take them.

“All the stuff we’ve heard in the past, because it’s federally illegal, we’ve heard about bank accounts getting taken away and stuff like that,” he says. 

Despite this, Tilson says that his business is working on finding a bank that would be willing to take them on as clients.  

“We’re working on it, I know there are people that have had it accepted,” he says. 

Dan Hansen, spokesman for Spokane Teacher’s Credit Union, says that since that institution is federally insured, it’s sticking to those laws for the time being. 

“What we’ve told our employees here is, essentially, despite the initiative, marijuana is still a Schedule 1 substance under federal law,” he says. “We have to go by federal guidance on this.”

Hansen says that the institution is aware that the federal government is supposed to provide recommendations for banks, but for now, STCU can’t loan money or open accounts for marijuana businesses. 

“It puts all financial institutions in a tough spot of knowing exactly what to do,” he says. “So much is up in the air on this.”

Heider says that that the NWCUA is also in a holding pattern until credit unions can receive assurances from the federal government that they won’t be prosecuted for having marijuana retailers as clients.

“What we’re saying at the state and federal level is that we have legal businesses that would like to open accounts, so what can be done about that?” she says. “The conflict is the state says yes and the federal government says no.”

Heider says there’s a push in the state Legislature to try to find an alternative solution. Sen. Bob Hasegawa, Democrat for the 11th District, introduced  a bill late last year that proposed creating a Washington publicly owned trust, or basically a state-run bank, that would provide banking services to marijuana businesses. 

“In Washington, there has been consideration of WashPOT (Washington publicly owned trust), looking at a potential alternative that might create a legal place to hold and lend marijuana money,” Heider says. “I think the credit union movement in Washington is pushing for a resolution.”

 Jarvis says that even if such a bank was created, it would still face the same challenges with federal prohibition as existing banks.

Liz Herndon, senior vice president and chief retail banking officer for Spokane-based Inland Northwest Bank here, says that institution also is awaiting government guidance before entering the marijuana businesses market. 

“The issue is that the FDIC (Federal Deposit Insurance Corporation) has not come out with any guidelines for this,” Herndon says. “So we’re still under the same anti-money laundering restraints, and those types of businesses would be considered high-risk.”

She says Inland Northwest Bank is hoping for federal guidelines that banks will be able to utilize when considering accepting marijuana businesses. For the time being, however, she says banks have to be careful about what clients they allow to bank with them. 

“For instance, we have a customer that wanted to rent a building to a marijuana grower,” Herndon says. “But if that grower pays cash for the rent, then that creates an issue for us, because where did that money actually come from?”

She continues, “If we had some definitive guidelines, we could take a closer look at the risks associated with those types of businesses. But until then, we don’t want to be any kind of business that would be associated with the marijuana industry.”

In mid-2013, U.S. Rep. Denny Heck, D-Wash., joined with Colorado Democratic Rep. Ed Perlmutter and a bipartisan group of 23 other members to introduce a bill called the Marijuana Businesses Access to Banking Act of 2013. The bill would give protections to banks that provide services to marijuana-related businesses, and currently is being reviewed by a congressional committee. 

In October, Washington state Gov. Jay Inslee and Gov. John Hickenlooper, of Colorado, sent a letter to federal officials, asking them to allow marijuana business to access the banking system in their respective states. The letter cites a few reasons for this, the main being that cash-only businesses are at a high risk for robbery and other crimes. 

“For example, our states will soon be licensing hundreds of retail stores, each of which will, without a normal banking relationship, be forced to conduct business on an all-cash basis. This creates an unnecessary inviting target for criminal activity,” the letter says. 

On Jan. 10, six members of Colorado’s congressional delegation submitted another letter requesting that the Treasury and DOJ expedite its recommendations and allow retailers to use the banking system, as Colorado has already begun retail marijuana sales. 

Jarvis says if the federal government had initially denied the request for recommendations, there wouldn’t even be anything to talk about. 

“Think about it, if back in August the federal attorney general had said no way, no how, we wouldn’t be having this discussion,” he says. “It’s been recognized that having cash floating around is not safe.”

Jarvis continues, “Every decade, the country changes a bit, and I think the trend lines are definitely clear on the medical side; we’ll see on the recreational side.”