The Mystery of the Missing Marijuana Money

Money Stories

• In the Colorado marijuana edibles business, if you want a bank account, you need to choose your name carefully. The goal is to obscure what you really make. Most banks will say no if they think your business is pot. One business decided “Granny’s Cookies” sounded just right.
• Medicine Man, a legal Colorado marijuana business, paid one month’s state taxes in a bag filled with cash. Totaling $122,000, the money could not be paid through a checking account because Wells Fargo had closed Medicine Man’s account. Instead, armed guards from the Blue Line Protection Group made the delivery to a state office.

Where are we going? To money that is missing from the banking system.

The Missing Money

Marijuana dealers’ relationship with banks is fragile. Nervous because marijuana is illegal under federal law, the Bank of America, Wells Fargo and others like them have closed marijuana-related accounts. Even after the U.S. Treasury said in February that marijuana business accounts would be okay if guidelines are observed, still most of the banking industry is hesitating. Having no immunity from prosecution, they remain concerned that the Controlled Substances Act (1970) is the law of the land. On the federal level, because marijuana is a Schedule 1 controlled substance (that’s serious), banks remain worried about drug trafficking or money laundering charges.

USA Today said it perfectly. Colorado’s marijuana businesses have a cash flow problem. Big cash is flowing in…and they have no place to put it. After all, what to do when you receive your revenue in cash but have no access to checks, savings accounts, loans, credit and debit cards?

And therein lies the mystery. If the money has not entered the banking system, can the Federal Reserve know how much there is?

The Bottom Line: Monetary Policy

Sort of like the heart pumps blood with all of its nutrients around the body, our financial infrastructure, regulated by the Fed and other federal agencies, pumps money. During the 1970s, interest rates soared but federal law imposed ceilings on savings account interest rates that kept them low at banks. As a result, money fled the banks in search of a higher return. Responding, monetary authorities moved quickly with new interest rate legislation to get the money back to the system.

To implement its monetary policy, the Federal Reserve needs to have money flow through the banks they regulate. The money that flows elsewhere is a mystery that they cannot control.

…Like Colorado marijuana money.

A Post Script:

Last month, a possibility emerged. Chartered by the state, Fourth Corner Credit Union said it would open soon with cash transfer, payroll, rent, and purchasing services. But first, to connect to the national electronic banking system, it is awaiting a Federal Reserve master account number. Since it has a state charter, it expects the Fed will acquiesce. But acquiring insurance could also become a glitch.