I know how to take a hint. Or in the case of the Vail Daily’s July 9 “Our View,” a double hint. Therein, the editorial staff wrote, in the context of Colorado’s marijuana laws and the current federal banking limitations, “We’d like to know some of the particulars about the pros and cons of organizing a private bank. ... This sounds like fertile grounds for one of our attorney columnists ... (hint, hint).”
OK, the seed (pun intended) having been planted as it were, here goes.
FEDS ARE WATCHING
Knowing my penchant for legal matters that can be reduced to song and Julie Andrews’ big-screen musicals in particular, let’s start, as that precocious novitiate Maria instructed us, at the very beginning. It is this: The cultivation, sale and possession of marijuana is a federal crime. To paraphrase the band The Police, the feds are watching “every breath you take.” Or if not exactly watching, if they did, you could — at least in theory — be in deep. This of course is notwithstanding that, pursuant to Colorado Amendments 20 and 64, and continuing with the musical theme, you can legally (at least under state law), according to Fall Out Boy, “Light ’em up, up, up.”
Hmmm. This presents a certain conflict.
Under one scheme — the feds’ — marijuana is illegal. Under another — Colorado’s Constitution (20 and 64, remember, are constitutional amendments) — it is perfectly OK (at least so long as people comply with the details of the amendment).
SUPREMACY CLAUSE: FEDS NOT CRACKIN’ SKULLS — YET
Then there is the Supremacy Clause to ponder. What the Supremacy Clause (Article 6, Section 2 of the United States Constitution) provides is this: The U.S. Constitution, federal statutes and U.S. treaties are “the supreme law of the land.” The Supremacy Clause provides that these are the highest form of law in the U.S. legal system and mandates that all state judges must follow federal law when a conflict arises between federal law and either the state constitution or state law of any state. This is all part of us binding the states together as a nation all those decades ago. Nonetheless, federal law — at least most times — trumps the laws of the various states.
Now, under the Obama administration, although there have been some mixed messages (for example, not too long ago, U.S. attorney for the District of Colorado, John Walsh, fired a broadside across the prow of the medical marijuana business, reserving the right to aggressive prosecution) the feds have sort of backed away from crackin’ heads. Of course, at noon on Jan. 20, 2017, a new backside will be warming the presidential chair. What that may bring vis-a-vis the marijuana trade is anybody’s guess.
COMMERCE CLAUSE: REGULATING BANKS
While we’re at it, let’s not forget the Commerce Clause (Article 1, Section 8 of the U.S. Constitution). What it provides is that the United States Congress shall have the power “To regulate commerce with foreign nations, and among the several states, and with the Indian tribes.” When one controls the free flow of commerce, all sorts of things — both logical and not, expected and unexpected — may migrate, either upstream or down. One of which is ability to keep the banking industry on at least some kind of leash.
Most, if not all, reputable banks are federally insured (that’s the FDIC stuff that you see them brag about). Many of them are federally chartered (some reputable banks are state chartered instead, which affords a certain flexibility that may not be afforded under a federal charter). “Chartering” and “insuring” are acts of “commerce.” As such, the Commerce Clause looms over them.
You see the conflict.
BANKS BEHAVE LIKE TURTLES
If the feds may regulate commerce “among the several states” and if federal law is supreme when in conflict with state law, then when you’re dealing with an industry which may be legal under state law but illegal under federal law, you’ve got a knotty problem.
And banks, you may have noticed, by and large tend to be a wee bit conservative. More times than not, they are going to adopt a turtle-like posture and draw in their necks in the face of conflict rather than lay it gently on the chopping block. Under some theories, a bank could even be considered an accessory or co-conspirator to a federal crime if it funded or even accepted marijuana businesses or funds.
STARTING A BANK IS NOT SIMPLE
What if you wanted to start your own bank? Do you just rent some space, throw up an “open for business” sign and start raking deposits? Ah ... no. Not so fast. As you might imagine, when it comes to banking there are certain rules and regulations to be followed, many of them over which the feds have oversight.
First, you have to have a business plan, a significant part of which involves where the start-up dough is coming from, and who will be involved. Second, you’ve got to apply for a charter. A banking charter is an agreement that governs the manner in which the bank is regulated and operates. It authorizes the organization of the bank by either the state or federal agency.
The agency that charters the bank is primarily responsible for protecting the public from unsafe banking practices. It conducts on-site examinations to make sure the bank’s financial condition is good and that the bank is complying with banking laws. Then there is the usual business stuff: picking a board of directors, determining the market and location, reams and reams of paperwork and making the whole thing glom together.
‘NO BANK IS AN ISLAND’
Let’s say, somehow you do that. Let’s say, you figure out how to dodge the whole magilla of rules and regulations, score a state charter (hey, the feds are simply not going to give you one; not now at least), deal with the thorny issue of not being federally insured (yep, there are other kinds of insurance but there remain the matters of: a) will someone issue it to you?, and b) will your account holders and investors feel secure?), and manage to open the First Bank of Marijuana Revenues. Good for you but, borrowing from the “Ghostbusters” theme now, “Who you gonna call?”
As John Donne reminded us, “No bank is an island” (or something like that anyway). A bank can’t just sit on a pile of scrilla; it’s like will.i.am crooned, they’ve got to “move it, move it.” The bank has simply got to shake hands with other financial institutions in order to do business and if others are reluctant to do so, it’s sort of a “tree falling in the forest making a sound if no one is around to hear it” conundrum. Congratulations, you’ve set up a bank and all but you can’t do biz.
WHAT ABOUT CREDIT UNIONS?
What about a credit union, then?
Well, this may be a better call but there would still be problems. Credit unions are generally insured under the National Credit Union Administration and backed by the full faith and credit of the United States government (Oops, there are those pesky feds again.)
The problem of how and where to move funds still remains. But there is the distinct advantage of a credit union’s depositors consisting of “members” and the fact that the credit union may decide who it will serve.
IGNORING PROBLEM NOT A SOLUTION
Rather than fitting the proverbial square peg into a round hole, the better call to trying to finagle a solution is simply to reform the banking laws, allowing banks and other financial institutions to deal with marijuana business in states where it is legal.
In the meantime, transacting this growing business (yup, another pun!) in cash is dangerous and stupid. It reminds me in a way of “don’t ask, don’t tell” which was a weird and stupid way of “not noticing” a problem.
Marijuana is now legal in some form (or decriminalized) in 23 states and the District of Columbia. As the Blues Brothers borrowed from the Rawhide series, “Rollin’, rollin’, rollin’… head ‘em up, move ‘em on.” Time to man up and find a workable solution rather than some silly patch that pretends the feds somehow don’t know what’s going on.
Rohn K. Robbins is an attorney licensed before the bars of Colorado and California who practices in the Vail Valley with the law firm of Stevens, Littman, Biddision, Tharp and Weinberg LLC. His practice areas include business and commercial transactions, real estate and development, family law, custody, divorce and civil litigation. Robbins may be reached at 970-926-4461 or at either of his email addresses, firstname.lastname@example.org or email@example.com.