How Do Banks Make Money

Your browser will redirect to your requested content shortly. Your browser will redirect to your requested content shortly. Where Pot Entrepreneurs Go When the Banks Just Say No As the legal markets for marijuana spread, a small credit union is solving a big problem: what to do with all the cash. It was wider at the bottom, sort of like an inverted funnel, and two buckles secured the flap. Babak Behzadzadeh knew exactly how how Do Banks Make Money might use the bag when he saw it hanging in a shop in Playa del Carmen, Mexico: It could be his bank.

Behzadzadeh placing cash in his satchel. Behzadzadeh owns two businesses in Denver. Avicenna Products makes potent marijuana concentrates. Next door, Green Sativa grows marijuana, which it sells directly through its own medical dispensary and store. 350,000 in monthly sales, all of it in cash. He sat at the ornate wooden desk and on its inlaid-leather top began counting the bills in each thousand-dollar stack. Babak Behzadzadeh among the marijuana plants at Green Sativa. Growing and selling marijuana are, like using it, legal under Colorado law.

But banks tend to take their cues from the federal government. Very few banks are willing to bear that risk. In most of the 22 states that, along with Washington, D. It is counted and recounted and stuffed into bulging envelopes, slid into back pockets and ferried around town in beaters and fully loaded S. But for Behzadzadeh, a solution lay in sight. In the fall of 2016, Elsberg and another employee, both veterans in the marijuana industry, put him in touch with Sundie Seefried, the chief executive of Partner Colorado, a credit union in Arvada, a Denver suburb. 350 million in assets, it still amounts to little more than a rounding error in the state’s financial-services market. But in three years it has established itself, entirely through word of mouth, as the marijuana industry’s biggest banker. To manage these accounts, Seefried — working largely alone, in order to shield her colleagues from possible prosecution — created a sophisticated process to match deposits and withdrawals to marijuana transactions that are legal in the state.

Five other small banks in the state also offer checking accounts to the industry and many more make occasional exceptions for companies owned by longtime customers, according to people who study and work in Colorado’s marijuana industry. They don’t lend them money, though, because the federal authorities could seize whatever collateral backs a loan. Seefried, by contrast, is happy to talk about it. Chris Myklebust, who oversaw Safe Harbor and every other financial institution chartered in Colorado as the state’s banking-and-financial-services commissioner until he left the job in November. Last spring, Behzadzadeh was gathering up dozens of business and financial records to send to her, and it was taking weeks. In the meantime, cash kept moving through the business.

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After returning from his rounds, Elsberg laid a pair of invoices on the table. Then he handed Behzadzadeh a No. Behzadzadeh began counting it for himself, separating it into thousand-dollar stacks, before depositing them into the satchel. Stacks of cash sitting inside Behzadzadeh’s safe. Every dollar that comes into Behzadzadeh’s companies is counted by Behzadzadeh or one of his employees at least three times before it goes out again. That way, I know I counted them. Seefried imagined that these would be her golden years, time spent at her vacation house in Santa Fe painting desert flowers in the style of Georgia O’Keeffe.

Seefried had in fact wondered about marijuana banking before. Now, buttonholed by her friends, she promised to investigate. She discovered that the conflict over marijuana — permitted by the state, prohibited by the United States — in Colorado and elsewhere has created a strange and uncertain legal landscape. Even Colorado officials who opposed legalizing marijuana — among them Gov. John Hickenlooper — support banking the proceeds, and not only because it reduces the prospect of robbery and violence. Sundie Seefried, center, and Kim Oliver, to her right, with employees of Safe Harbor.

How Do Banks Make Money Easily

But that’s not a view broadly shared by federal officials. Most bankers did not take much comfort from the guidance, which could be retracted as easily as it was put forward, because read narrowly, it only explained how to report marijuana transactions to the government. It gave no assurance that banks would not face prosecution for money laundering. Seefried, though, saw a way forward. Working off-hours at home with the blessing of Partner Colorado’s board, she outlined the steps the credit union could take to demonstrate convincingly that marijuana-business clients were complying with the Cole memo. She named her vetting program Safe Harbor Private Banking.

Partner Colorado’s headquarters in Colorado, where Safe Harbor offices are located. Forget the hippie colonies up in the mountains. The epicenter of Colorado marijuana production lies in Denver’s north-side industrial district straddling I-70, where railroad spurs weave between warehouses, distribution centers and factories. Behzadzadeh settled in Rhode Island, where he trained as a pharmacist.

After seven years filling prescriptions, he found his way into software consulting and got rich before concluding that encroaching global consultancies would eventually swallow his business. At the time, Colorado was drafting the regulations governing the sale of recreational marijuana. State and often local requirements govern every aspect of Colorado’s marijuana trade to ensure safety and that no plant is grown or sold outside the licensed system, where it could evade taxation or end up in the hands of people not allowed to have it. But for all the regulatory rigor, the flux of cash requires adjustments on the fly that no business with a checkbook, let alone a line of credit, would have to face.

But the satchel was a little light. 17,000 as a down payment on a new roof for his grow, which he was in the process of expanding. 13: four days’ worth of sales at the dispensary. Each envelope bore the day’s total — the money had already been counted at the store, twice — but now Elsberg sat down at Behzadzadeh’s big leather chair and pulled the cash out of an envelope. When Behzadzadeh finally sat down to disburse the payroll, it was after 5 p. 22 thousand-dollar bundles, plus a big stack of small-denomination bills that he’d been collecting all week, and then laid it all on a cushion beside him.

Walking out into the Friday twilight, very few of Behzadzadeh’s employees probably gave much thought to the wad of cash in their pockets. Employees trimming marijuana at Green Sativa. Applying for a Safe Harbor checking account is an invasive procedure. Once the accounts are opened, Safe Harbor’s bankers inspect the business and its premises as frequently as every three months, to confirm that it hews to all of Colorado’s rules. Safe Harbor bankers spend most of their time monitoring client transactions, tying every dollar the bank takes in to a legitimate sale and making sure that no dollar withdrawn disappears into the illicit economy.

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You are already subscribed to this email. The banker interrogated the client and, from the parking lot, even staked out the dispensary and studied its customers. Safe Harbor has closed three other accounts after members broke various credit-union rules, indicating that they weren’t willing to be fully transparent with their bankers. Late last summer, Seefried ejected three more members after bankers, working with money-laundering experts, detected suspicious activity. Last June, the National Credit Union Association, Partner Colorado’s federal regulator, conducted its annual examination of the credit union’s books and practices, and for the third year in a row, had no complaints about Safe Harbor. Today the program consists of 13 people, including five responsible solely for compliance. Women manage more than half of all credit unions.

This sort of meticulous banking isn’t cheap. Client companies that serve the marijuana industry but don’t actually sell the drugs, like laboratories, require much less vetting and so pay much lower fees. For marijuana businesses, engaging with the financial mainstream has kept them mostly free from legal trouble. Safe Harbor has received subpoenas for the bank records of only four of the just over 200 clients it has had.

John Walsh can recall prosecuting one case against regulated dispensaries and none against a business serving the industry. An employee refills a container at Green Sativa. On the last Wednesday of last March, Kim Oliver, Partner Colorado’s executive vice president, pulled her old, mud-streaked silver Jetta into Avicenna’s parking lot. She had come from her ranch, east of Denver. She was dressed formally and seemed intently focused on the business at hand.

Oliver, who is 59, has worked in credit unions all her adult life. Earlier she had confided to me a lifelong hostility to marijuana and rage when she discovered that her son-in-law, a veteran suffering from PTSD and living in her house, was cultivating a small crop in her basement. But working on Safe Harbor had forced her to reconsider her views on medical marijuana. Oliver sat down with Behzadzadeh and Elsberg at a gray marble table in the kitchenette just inside the employee entrance. She began the formal inspection by going through a checklist: six pages long, scores of questions.

The first series delved into Behzadzadeh’s financial practices and the second into business procedures. These were meant to assess Behzadzadeh’s compliance with state regulations. Oliver’s Great Plains twang was disorienting. One of the incongruities in Colorado’s marijuana business is how professionals new to the trade adopt the Mendocino idiom without either irony or any particular reverence, the way their clothes absorb the plant’s scent after a few hours on site. That’s the beauty of it — we have cameras on everything.

The questions, and especially the answers, occasionally delved into minutiae, as when Behzadzadeh noted that he had hired a man to drive the perimeter of his two buildings hourly every night. Next, Oliver went about documenting compliance, snapping photos of the cameras, the safes, the locks on cabinets and other equipment, the bars blocking the windows and even the eyewash station. She walked over to a bakery-bun rack and photographed the RFID tag lying next to a brittle sheet of an extract known as shatter. The dispensary inspection got off to a rocky start when Oliver noticed the A. 2,000 in cash taken from the register.