WASHINGTON - The Obama administration on Friday gave banks a road map for conducting transactions with legal marijuana sellers so these new businesses can stash away savings, make payroll and pay taxes like any other enterprise.
But it's not clear whether all banks will get on board. State banking regulators in Colorado and Washington - the only two states that have legal recreational marijuana sales - appear to believe that mainly small and medium-sized banks will be interested in handling financial transactions with legal marijuana stores, according to an official with the Treasury Department's Financial Crimes Enforcement Network, or FinCEN.
"This is a decision that each financial institution needs to make on its own," said the official, who asked not to be identified. "We feel quite comfortable that we have acted within the scope of our authority" and therefore don't expect legal challenges to the new procedures.
Guidance issued by the Justice and Treasury departments is the latest step by the federal government toward enabling a legalized marijuana industry to operate in states that approve it. The intent 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. And 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."
Despite Childears' misgivings, 5 Star Bank plans to begin offering banking services to Colorado Springs medical marijuana dispensaries, said Mike League, the bank's CEO and a board member of the bankers group.
"We will accept accounts from dispensaries once they are verified" as having state licenses, League said. He added that the bank's board discussed it last month, and now that the Justice and Treasury departments have offered guidance, "we feel comfortable in entertaining that business.
League said he expects that most banks serving Colorado Springs - other than large regional and national institutions - will work with dispensaries. He predicts those in the marijuana business will jump at the chance to move from largely operating entirely in cash to being able to accept check and credit card transactions.
"It is good day for the industry, the community and the banks. It will not be a gold rush or make a huge difference for banks, but it will open the credit system to these businesses to get loans to buy buildings and equipment," League said.
Robin Roberts, president of Pikes Peak National Bank, said the bank is awaiting formal guidance from its regulator, the U.S. Comptroller of the Currency's Office, but wants to offer services to dispensaries "as long as the guidance we get is not too onerous."
She called Friday's announcement "better overall for both business and the community."
"Businesses with large amounts of cash on hand are magnets for crime," Roberts said.
Currently, processing money from marijuana sales puts federally insured banks at risk of drug racketeering charges, so they've refused to open accounts for marijuana-related businesses.
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.
But in response, 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 only be comfortable serving marijuana businesses if federal prohibitions on the drug are changed in law.
Denny Eliason, a lobbyist for the Washington Bankers Association, called it a good first step, but said it sets forth a complicated process for the banks to follow.
"They'll have to have a real awareness of the activities of their customers," he 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.
The guidance provides the banks with more than 20 "red flags" that may indicate a violation of federal law. It has been difficult for legal marijuana sellers to operate without banks in the mix.
"It's not just banks that are wary about handling our money, it's everybody - security businesses, lawyers, you name it, no one wants to take the risk of taking our money," said Caitlin McGuire, owner of Breckenridge Cannabis Club in Breckenridge.
McGuire's shop had an account with a local credit union for years, but the credit union cut them off last year.
"They basically told us they wanted to keep our accounts, but it was too big of a risk. They were questioned by their auditors, 'Why do you have this marijuana account?' It just ended up being too much for them."
The pot shop now pays its bills with money orders and cash. It's not easy, McGuire said.
"It's made it very difficult to pay our bills, to pay our employees, to pay our taxes, to do anything."
Gazette reporter Wayne Heilman and Associated Press writers Martin Crutsinger, Alicia Caldwell and Kristen Wyatt contributed to this report.