A top Federal Reserve official met Thursday with owners of marijuana businesses in Colorado, who catalogued the difficulties of operating in an industry that's largely been locked out of the banking system.
The pot barons' meeting with Esther George, the president of the Federal Reserve Bank of Kansas City, shows that the fledgling industry's lack of access to the financial system is now receiving high-level attention at the central bank, which is facing growing pressure from states like Colorado.
As more states legalize pot, either for medicinal or recreational use, state laws have come into conflict with federal law, which still criminalizes the drug. Banks and credit unions, which sent representatives to Thursday's meeting, are stuck in the middle.
The meeting came as the Kansas City Fed mulls an application that would allow the Fourth Corner Credit Union, a newly established state-chartered institution that plans to focus on the marijuana industry, to open its doors. The central bank's decision could set a precedent with nationwide implications.
During the meeting at the regional Fed bank's Denver branch, George didn't discuss Fourth Corner's pending application. A spokesman for the Kansas City Fed declined to comment on the matter. Officials with Fourth Corner also did not return calls seeking comment.
But George did express sympathy for marijuana merchants who have often been forced to operate in cash, according to Andrew Freedman, Colorado's director of marijuana coordination, who attended Thursday's meeting.
One pot dispensary owner described having been kicked out of 12 different banks, according to attendees. Other businesspeople spoke about the public-safety concerns associated with cash-only enterprises.
"Many small business owners have even had to hire armed guards to escort staffers when it's time to pay taxes because their profits are in cash," Rep. Jared Polis, D-Colo., who helped organize the session, told reporters afterward.
The Kansas City Fed could help address those problems by approving Fourth Corner's application. But observers expressed skepticism that the Fed will give the green light to a marijuana-focused credit union.
Given the potential ramifications of Fourth Corner's application, the matter is likely getting attention from the Fed's Board, said Bert Ely, a bank industry consultant.
"I suspect that this is being discussed at the highest levels of the Fed, because of the precedent-setting effects," he said. "I can't imagine that this is a decision that would be made by Kansas City."
Lance Ott, a principal at Guardian Data Systems, a company that helps pot dispensaries with their financial management, said he doubts the Fed will ultimately approve Fourth Corner's application.
Under current federal guidance, a small number of banks and credit unions have been providing accounts to marijuana businesses. But those financial institutions also operate other less controversial lines of business. Fourth Corner, by contrast, plans to focus on the pot industry.
"You can't just go into business to serve one high-risk vertical," Ott said, anticipating regulators.
Many bankers have long expressed the opinion that only Congress can fix the pot industry's banking problem, and that view was echoed Thursday by Colorado officials.
"My understanding at this time is that, ultimately, Congress will have to act in order to create a solution," Chris Myklebust, Colorado's financial services commissioner, said in an email.
Polis and Rep. Ed Perlmutter, D-Colo., have sponsored two separate pieces of legislation that would likely assuage banks' concerns about the pot industry. Those measures might well pass the House if they came to a floor vote, but so far they haven't been able to get out of committee.
The lawmakers called on the Fed to support their legislation.
"We would welcome their constructive role in our legislative process. People respect the Fed," Polis said.