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Colorado’s Roadmap to Cannabis Banking – A Roadmap Without a Destination

Kudos to all of those involved in this effort in Colorado, but I’m not sure how this advances the effort to get more Colorado financial services providers to serve more cannabis related businesses. Most importantly, the “Wildly Important Goal” set out in the Roadmap – to increase the number of Colorado-chartered financial institutions serving cannabis related businesses by 20% – doesn’t actually address the underlying problem that the Roadmap otherwise tries to address. It’s not important how many financial institutions are providing financial services to cannabis related businesses: what is important is how many cannabis related businesses have access to financial services.

First, the Roadmap is limited to Colorado-chartered banks, trust companies, money transmitters, credit unions, and savings & loans. Federally-chartered financial institutions are not included: in fairness, Colorado has no jurisdiction over federally-chartered entities. Regardless, all of those Colorado entities have some sort of federal agency oversight (OCC, FRB, NCUA, IRS, etc.) and none of those federal agencies have been willing or able to provide any formal regulatory fixes. And it should be noted that none of those agencies have formally acknowledged the February 2014 FinCEN Guidance on providing financial services to marijuana-related businesses: they’ve had six years to do so, and haven’t. That should tell you something.

Second, if you read the seven goals and the “key strategies” accompanying each of the goals, there doesn’t appear to be much that is new or ground-breaking:

Goal 1 – Establish a working group – the Roadmap shows this goal as “complete and ongoing since January 2019”

Goal 2 – Increase transparency – “On track” with references to cannabis industry meetings in July 2019 and hemp industry meetings in September 2019

Goal 3 – Engage trade associations – “on track” and “complete”

Goal 4 – Encourage new and emerging technologies – The Division of Banking has issued its Interim Regulatory Guidance for Virtual Currencies and the
Colorado Money Transmitter Act, and (here’s something that isn’t new but almost complete) “obtaining legal guidance from the Attorney General regarding providing services under the Money Transmission Action and the Trust Companies Act to issue public guidance for consumers and the industry” is targeted for “spring 2020”

Goal 5 – Provide regulatory guidance – “Ongoing”

Goal 6 – Reduce barriers to entry (to new financial institutions) – “In progress” and “ongoing”

Goal 7 – Demonstrate support – “Ongoing”

So it looks like two of the seven goals are complete, four are on track/in progress,ongoing, and one goal is targeted for completion this spring. The seven goals are laudable, but not particularly bold or ambitious.

Third, although the Roadmap includes a “Wildly Important Goal” of implementing a plan to increase the number of (Colorado) financial service providers who serve CRBs by 20% by June 30 of this year, there is nothing about how many such financial service providers there are or how many of those are currently serving CRBs. According to the Colorado Division of Banking website, it regulates 799 Colorado-chartered commercial banks, trust companies, and money transmitters. According to the Colorado Division of Financial Services, it regulates 46 credit unions and savings & loans. So that’s 845 Colorado-chartered financial institutions: how many of those are currently knowingly providing financial services to Colorado CRBs? And what types of financial services are those financial institutions providing? Also, how many non-regulated businesses are providing financial services to CRBs and indirectly using Colorado-chartered financial institutions (in the same manner as Chime and Varo Money use The Bancorp Bank, or SoFi uses Cross River Bank)? We don’t know, because the Roadmap doesn’t provide any information.

Nor is there anything about how many CRBs there are in Colorado or how many currently have access to Colorado financial services providers. The Colorado Marijuana Enforcement Division website shows 2,707 licensed marijuana businesses – Colorado Marijuana Enforcement Division – and 1,712 licensed owners. How many of those businesses and owners don’t have any access to financial services? How many of them are currently obtaining services from Colorado-chartered financial institutions? The Roadmap is silent.

It’s tough to increase something by 20% if you don’t know what that something is.

Fourth, the wildly important goal of increasing the number of Colorado financial institutions serving cannabis related businesses doesn’t necessarily address the underlying problem to be solved, which is the lack of financial services available to cannabis related businesses. There are 845 Colorado-chartered financial institutions available to serve 2,707 Colorado cannabis related businesses. Assuming, for argument’s sake, that there are currently 100 financial institutions serving 500 cannabis related businesses in Colorado. Increasing the number of financial institutions by 20% to 120 doesn’t mean that the number of cannabis related businesses with access to financial services goes up at all, let alone by 20% to 600. Rather, the Wildly Important Goal should be to increase the number of Colorado cannabis related businesses with full and complete access to Colorado-chartered financial institution services by 20%.

Conclusion

Like the ABA’s response to Senator Crapo’s December 18, 2019 opposition to the SAFE Banking Act (see ABA Response), the Colorado Roadmap would have been more effective if it had provided data on the size and scope of the actual problem of the cannabis industry’s lack of access to financial services. The best the Roadmap does is: “Colorado state-chartered banks and credit unions have generally not provided services to the marijuana industry … as a result, there are a substantial number of cannabis and cannabis-related businesses that do not have access to banking services.” Given the public and private sector efforts in Colorado since full legalization in 2014, they authors and contributors to the Roadmap should have had the data to be able to write something like this (using numbers that may be wildly off): “only 20 of the 564 Colorado state-chartered banks, and 6 of the 41 credit unions are actively, knowingly provide full financial services to only 200 of the 2,707 licensed Colorado marijuana businesses. Our Wildly Important Goal is to increase the number of banks and credits unions serving those businesses by 20%, and to increase the number of Colorado marijuana businesses with access to those banks and credit unions by 50% …”.

That would be a goal worth shooting for, or in the case of this roadmap, driving towards.