Steamboat marijuana businesses navigate uncertain financial terrain
February 21, 2014
Steamboat Springs — Where there's a will, there's a way.
That's Kevin Fisher's mentality to the business of marijuana.
The financial-sector hurdles that arise from the disconnect between state decriminalization and the list of federal Schedule 1 substances have stymied owners of marijuana-related businesses across the state.
News stories feature anecdotes of hapless people struggling with how to maintain a bank account, taking credit cards or facing eviction because their landlord couldn't refinance a loan.
Fisher — who owns Rocky Mountain Remedies with his business partner, Ryan Fisher — presents his solutions so matter of factly that the obstacles fade into routine business rather than pioneering a market with looming federal consequences.
Rocky Mountain Remedies has been accepting credit cards for far longer than retail sales have been available or that the issue of the cash-intensive nature of most retail dispensaries has been of mainstream concern.
The business has a federally-insured bank account with an institution, which Fisher declined to name, that knows what Rocky Mountain Remedies sells.
There have been recent reports of Colorado landlords being unable to refinance loans on commercial properties that house marijuana-related businesses because banks fear the collateral could be seized by the federal government.
Rocky Mountain Remedies has retail, medical, cultivation and infused product manufacturing operations in multiple locations in Steamboat, but all of them are wholly owned, eliminating the concern of financing.
"We don't ever believe in lying," Fisher said.
That said, medical marijuana is a health care service. And when you're looking for financial services, that is an accurate description of the business.
Now, as the industry has grown, Rocky Mountain Remedies has been approached by merchant services companies that are open about catering to marijuana-related businesses.
"We pay a little bit more in fees," Fisher said.
But what's that when Colorado Gov. John Hickenlooper is predicting that marijuana sales will add more than $100 million to state coffers this next fiscal year, meaning total sales could reach $1 billion?
Retail sales at Rocky Mountain Remedies were at the high end of what the owners prepared for, Fisher said.
"We planned for that situation product-wise," he said. "I'm not a cynic, but I’m conservative."
Rocky Mountain Remedies is planning expansion of its cultivation operations, and its infused product manufacturing will take over the space that was used by its previous medical storefront.
Fisher also is expanding into Massachusetts, taking the position of executive director and chief operating officer for nonprofit New England Treatment Access Inc. That venture is being underwritten by a family with experience in the financial sector.
Various private funds have begun raising capital to invest in marijuana-related businesses that might not be able to access traditional financial markets.
"None of them are super well funded at this point," Fisher said, but there is plenty of private money out there.
Instead of stomaching the steep interest rates of private equity, he said, he'd rather be in business with an individual investor with deep pockets.
But Rocky Mountain Remedies is at a point where Fisher said he didn't foresee the need to court outside funds.
The recent guidance offered to the banking industry by the Treasury Department and the Justice Department doesn't help anything, Fisher said, and won't make banks more willing to work with marijuana-related businesses.
A statement from the Colorado Bankers Association states that the guidance does not lift the threat of prosecution.
"Instead, it reiterates reasons for prosecution and is simply a modified reporting system for banks to use," the release states. "It imposes a heavy burden on them to know and control their customers' activities, and those of their customers. No bank can comply."
"You have a state that has said 'Yes' but those that actually enforce have said 'No,'" said PJ Wharton, president and CEO of Yampa Valley Bank. "From our perspective, it put all the onus on the bank to act as a policing agent."
Banks can be regulated by multiple federal agencies in addition to state agencies. The recent federal guidance, Wharton said, states that banks can have customers with marijuana-related businesses but they should be prepared to face the consequences of doing so.
"What we're looking for is safety from our regulators who say 'We're a national regulator, and we don’t care what the state said,'" he said. "If I had a client that was in existence beforehand long before, we would consider it on a case-by-case basis, but to accept a new customer, we're effectively still prohibited.
"It's not a fair situation for the bank or for customers."
Robert Kauffmann, manager of First National Bank of the Rockies in Steamboat, said that the guidance he's received is to not take accounts from marijuana-related businesses.
"When the medical marijuana business first started up in the Steamboat area, we did have some accounts," Kauffmann said. "Then our legal team advised us that we should not do that, so we discontinued the accounts with medical marijuana businesses."
Nothing has changed since then, and Kauffmann cited the Colorado Bankers Association statement as reinforcing that view.
The Colorado Bankers Association stated that the solution is to move forward with legislation such as what's been proposed by U.S. Rep. Ed Perlmutter, D-Arvada, in H.R. 2652. Perlmutter's Marijuana Businesses Access to Banking Act hasn't seen any action since September.
Of the two other marijuana dispensaries in Steamboat, Natural Choice remains a cash-only business, but Golden Leaf does accept credit cards. Golden Leaf has faced setbacks to obtaining a retail license from the city but will be back before the marijuana licensing authority March 4.
Joshua Scruggs, part owner of Golden Leaf, said the business does have a bank account and merchant services. Like Rocky Mountain Remedies, Golden Leaf's location is wholly owned.
Other dispensaries have obtained merchant services under personal names rather than business names and sometimes operate without business bank accounts. Some dispensary owners did not want to talk on the record about specific setups for fear it could jeopardize their relationships with financial institutions or service providers.
Medical marijuana now is legal in 20 states, and 13 more have introduced medical marijuana legislation in this session.
As medical marijuana spreads through legislation or ballot measure and the idea of full legalization makes headway, the pressure for federally-sanctioned financial services is only going to increase.
"I have a long, long memory," Fisher said.
"When we're successful in Colorado, Massachusetts (and) Florida," he said, "I'll remember who our friends are."