Since a prior article on “pot banking,” there have been some interesting recent developments. The most significant has been in Colorado. “Fourth Corner Credit Union” was given conditional approval by the Federal Reserve Bank (FRB) of Kansas City to serve businesses that support “marijuana focused and licensed businesses.” This includes accountants, landlords, vendors and arguably other businesses that contract with the marijuana companies.   Please note, however, lawyers and law firms are specifically excluded. In addition, for the credit union to become fully operational, it must obtain depository insurance from the National Credit Union Administration (which is embroiled in a suit with Fourth Corner for a prior denial) or a private insurer.

For those who have been following “pot banking” since the matter arose, and brought to light by Colorado’s entrance into the recreational use arena, this was the same credit union that sued the Federal Reserve Bank three years ago for its refusal to approve the credit union to operate. The distinction here is the limitation on which businesses may maintain an account, which before was focused on the marijuana businesses themselves and not the support industry. Clearly the FRB is taking a very cautious approach, especially in light of U. S. Attorney General Jeff Sessions’ January 4, 2018, memorandum. The FRB of Kansas City stated in its conditional approval letter that it “does not express the policy views of the Fed, nor does it contain any supervisory, regulatory or enforcement guidance or precedent.” While this is not a total victory for marijuana producers, it is nonetheless a victory, because certain financial institutions were loathe to accept accounts from businesses that supported the marijuana industry.

It seems one cannot discuss marijuana in Colorado without addressing marijuana in California. As with Colorado, pot banking efforts in California face the same hurdle of obtaining approval from the FRB (i.e. obtain a master account with the FRB) and obtaining backing by the Federal Deposit Insurance Corp. (FDIC).

But whereas the Colorado model involves a single financial institution within the state, California’s model envisions a State of California bank that is OF the state. As many may be aware, one of the biggest problems with the marijuana industry has been the large accumulation of cash. Many states allow these businesses to pay taxes, fees, licensing issues, etc., with cash. In California, the cash is deposited into accounts owned by the state but with various state banks.

California is proposing a fully state-run bank that would accept these cash deposits using local banks as conduits to deposit the money, while keeping the funds separate and apart from the institution where they are deposited. The cash would then be transported to a branch of the state-run bank and then deposited in accounts already held by the state. The accounts into which the money is deposited would have only the State of California as its account holder and not a marijuana-related business participant.

Each business, upon being licensed would have an account automatically opened in the state-run bank, which would also then permit employees of the business and support business, such as accountants, landlords AND lawyers to also open accounts. Funds can then be transferred from the state-run bank and into an account holder’s FDIC-insured bank account.

An argument can be made that this would be an attractive mechanism for state (and yes, federal) banking regulators, as the entire state’s marijuana-based economy would be enclosed in one institution, leading to efficient examinations and complete transparency and tracking of all legal marijuana money.

As for the FDIC issue, California as the world’s sixth largest economy could afford to propose a self-insured model.

Could Florida follow suit? It would not be inconceivable to see Florida explore such a model. Bearing in mind that many of the issues surrounding the medical marijuana industry concern the nature of a cash-only business fraught with fears of money laundering, then, “yes,” not only is it conceivable, but it should be thoroughly explored by the state.

What better way could there be for the state to track cash, correlate the cash to particular licensees, observe any anomalies with business accounts on a weekly and monthly basis, and yet still provide the transparency and maintenance of books and records that both state and federal regulators would require for examination purposes?

This would provide the ultimate satisfaction of anti-money laundering initiatives, “know your customer,” the Bank Secrecy Act and other safeguards implemented by banking regulators. Support industries such as accountants and lawyers and landlords would have a far simpler mechanism to separate their marijuana revenue from mainstream revenue.

The drawback to this model? It would be the concession that marijuana has become a mainstream medical alternative and possibly pave the way for future recreational endeavors in Florida. And as for the FDIC matter, Florida’s economy is currently hovering around the number fifteen or sixteen mark in the world, which is not too bad if it opts to go the route of self- insurance.

Colin M. Roopnarine is a partner on Berger Singerman’s Government and Regulatory Team who focuses his practice on administrative law. Roopnarine can be reached at croopnarine@bergersingerman.com www.bergersingerman.com