Will the Federal Reserve kill pot?
Last year Colorado alone generated over 700 million in sales of Marijuana (source: Washington Post) and is scheduled to increase to close to 1 billion by 2016. Marijuana is also now legal in OR, WA, AK and medical in many more. All the sales are basically in cash cash since marijuana banking continues to be an industry wide issue regardless of the state.
What does the Treasury department have to do with pot?
Regardless of the side of the fence you are on regarding legalization, this is a very dangerous problem that needs to be resolved quickly. The treasury department with all their wisdom issued various memos basically outlining how banks can accept marijuana deposits. Bankers rightfully so dismissed these “guidance memos” and for good reason.
What does the Federal Reserve have to do with Marijuana?
So Colorado lawmakers thought they would get creative and authorize a credit union solely to bank the marijuana industry. Unfortunately without approval from the federal reserve, this idea was basically a pipe dream. Why? The Federal reserve basically controls the money system in the United States. What I mean by that is any financial institution needs a fed reference number and access to the fed in order to clear checks, transfer money, take advantage of overnight lending, etc…
This credit union that was conceived by the legislature petitioned the federal reserve. The federal reserve did nothing to respond to their request. The credit union then filed a lawsuit to force the federal reserve’s hand. Unfortunately things did not work out as expected. In the counter to the lawsuit the fed stated “Even transporting or transmitting funds known to have been derived from the distribution of marijuana is illegal,” and went on to say: “Condoning Colorado’s illegal marijuana trade would be akin to supporting other illegal enterprises” (See Denver post article)
What does the recent statements by the federal reserve mean and how will this influence banking in the industry?
So what does this mean? Well in a nutshell, if a bank possibly were on the fence as a result of the treasury guidance, this stance by the fed has clearly pushed them off the fence. Furthermore, any bank that might have involvement in this industry is going to think twice with this new memo. But wait, there was a bank in Oregon (M bank) that focused just on the marijuana industry that is ditching all their accounts (See full article). Unfortunately due to the regulatory burdens they are no longer banking this industry.
So where does this leave us? Basically pot banking in mainstream banks is dead in the water for now. Until there is federal legislation to legalize (or decriminalize) marijuana we will have dangerous amounts of cash floating around that is ripe for abuse.
Five tips for marijuana investing
I like to joke just because you smoked the wacky tabacky in college doesn’t make you a marijuana business mogul. . It seems like many investors are enamored with the burgeoning marijuana industry. On the surface the returns look amazing for anyone involved and many are jumping in head first before checking the facts. Why wouldn’t someone go buy and industrial building and lease it for four times what they could to a normal tenant? Should an investor take the plunge to invest in this new industry? Will the appreciation and rents continue? Will the political landscape change and have a major impact on the industry?
Before jumping on the Marijuana bandwagon, here are five tips every investor needs to consider. See the full article written for the Colorado Real Estate Journal
Written by Glen Weinberg, COO/ VP Fairview Commercial Lending. Fairview is a hard money lender specializing in private money loans / non-bank real estate loans in Georgia, Colorado, Illinois, and Florida. They are recognized in the industry as the leader in hard money lending with no upfront fees or any other games. Learn more about Hard Money Lending through our free Hard Money Guide.