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Medicinal marijuana clinics have trouble with banks

Patients at the Harborside Health Center.

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Kai Ryssdal: The city of Oakland, Calif. has a new economic development plan. Last night, the city council approved four new industrial-sized farms. Farms that are going to grow marijuana. Supporters say the farms will create millions of dollars in taxable sales and maybe a couple of hundred jobs to boot. Using pot for medicinal purposes has been legal in California since 1996. All told, 14 states and the District of Columbia allow medical marijuana. Last year, the Obama Justice Department backed off strict enforcement of federal drug laws when considering medicinal pot, but growers and dispensaries still find it tough to do business, because they can't get banks to take their money.

From Oakland, Rachel Dornhelm reports.


Rachel Dornhelm: At this medical cannabis dispensary, there's jazz music in the background and flowers in vases. Steven DeAngelo is giving me a tour.

Steven DeAngelo: We're in the main area of Harborside Health Center right now. To my right is a long blond wood counter with a number of display cases on top of it, and each one of them hold about 100 different types of cannabis medicine.

Behind the sleek counter, eight cashiers stand like bank tellers, serving and ringing up customers.

Cashier: Your total today is $61.46. Thank you for your ID.

Patient: Thank you for asking, actually.

DeAngelo, the executive director, says more clients, like this one, are paying with credit cards. And business is booming -- he did $2 million in sales last month. But he has run into challenges when he tries to bank that money. Harborside was dropped by its credit card processor last year. Then, this came in the mail:

DeAngelo: I'm reading a letter from California Bank and Trust dated Dec. 30, 2009.

"Dear Steven DeAngelo," it starts, "we're going to have to close your accounts."

DeAngelo: Among the reasons for this decision is the uncertainty between state, federal and local law regulating marijuana providers and co-ops.

When asked for comment, the California Bank & Trust sent a statement. The bank said it stopped doing all business with medical marijuana providers, because it determined the legal due diligence would be too burdensome. DeAngelo says he did find a new bank.

But Jill LaMoureux says she's been dropped by three banks in the last eight months. Lamoureux owns and manages dispensaries around Boulder, Colo. The most recent bank notice arrived the day I talked to her.

Jill LaMoureux: I'm going to spend all day with a phone book tomorrow and call every bank in town at this point, and ask them if they're willing to take the business.

LaMoureux says losing her bank would be a big deal. She has to pay payroll, health insurance, state sales tax and many other vendors.

LaMoureux: When it gets to the point if you ask your lawyer can you take $5,000 cash, it's a little uncomfortable for everybody.

Why aren't the banks on board? One of Lamoureux's ex-banks, Elevations Credit Union, says one law on the books could trigger too many requirements for reporting suspicious activity.

Michael Malloy is a law professor at the University of the Pacific.

Michael Malloy: It's called the Bank Secrecy Act, but the major impact of this federal legislation is to require banks to disclose things.

Malloy says this act places obligations on banks to serve as sort of "motion detectors" on behalf of federal enforcement agencies. If they see activity that seems questionable, they're supposed to report it to authorities. In the case of medical marijuana, he says, it's complicated by disagreement between state and federal law.

Michael Malloy: So long as it remains ambiguous, banks are going to view the ambiguity itself as a risk.

The consequences could be fines or removal of bank employees. Last month, 15 members of Congress sent a letter to Treasury Secretary Geithner asking him to intervene. They want Treasury to assure banks that they won't be targeted if they provide services to a compliant medical marijuana dispensary. But law professor Malloy says that duty is actually handled by five different regulatory agencies that don't have a good track record of working together quickly. Still Harborside director DeAngelo is certain medical cannabis providers won't be without financial services.

DeAngelo: The industry is legitimazing, and over the course of the next decade, will become a hundreds of billions dollar legal industry across the country. I don't think the banks are going to be able to resist that.

In the meantime, he says he sees a great opportunity to start a credit union or commercial bank dedicated to serving his industry, and he's looking for the right partners to join him.

In Oakland, I'm Rachel Dornhelm for Marketplace.

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