Banking columnist: Lenders have reason to be leery of pot businesses
We’ve heard a lot about the woes of the marijuana business in finding a depositary for money generated by the industry. Banks aren’t accepting deposits from growers, wholesalers and retailers.
There’s been some publicity about the corresponding difficulty these enterprises are having in borrowing money, although not as much as on the deposit side.
Banks don’t lend to pot businesses either. Their regulators haven’t said they can’t make these loans, but they’ve filled their guidance with so many caveats that bankers are scared to death. This is called “tacit approval,” and if someone has ever dealt with regulatory agencies, they know that’s not an approval at all. The situation can change overnight.
So this leaves the private lending sector, vast and chaotic as it is. This kind of financing ranges from a guy in a bar with a fat wallet attached by a chain to his belt, doling out Franklins on a table, to a Manhattan high rise, where the suits are perusing complex spread sheets.
And not all of these folks are flocking to pot industry financing.
It’s easy to understand why if one remembers that the growth and sale of the drug is illegal under federal law. It’s a well established legal principle that U.S. law pre-empts state law. Right now, federal law enforcement is looking the other way. They don’t have to; it’s that tacit approval concept again.
Advocates of the marijuana industry and the people in it will tell you that the swell of approval of the drug is becoming a tsunami. They point to state after state in which marijuana legalization is imminent, including Oregon, Arizona and California. They argue that there’s now no turning back to the dark days of Reefer-phobia.
They may very well be right.
But, what if they’re not?
Could the pendulum in the nation’s capital be inching back the other way? Both the House and Senate have a Republican majority, so conservatives outnumber liberals. It’s very possible that a conservative administration will move into the White House in 2017.
What if we end up, say, with an attorney general named Ted Cruz? And you don’t have to be an archconservative to have reservations about repealing the anti-marijuana federal statute. Loretta Lynch, president Obama’s nominee to replace Eric Holder, has stated she disagrees with the president’s stand on marijuana and that she doesn’t favor its legalization.
What does it mean if the feds trade “tacit approval” for “explicit enforcement?” Federal law permits the government to confiscate property acquired through an illegal activity, as defined by federal law. That means that any lender that knowingly lent money to a pot business could lose its collateral.
Of course there are lenders that will do the business despite the uncertainty, taking what they consider a calculated risk in return for high yields and fees. Many will not.
One would think that this situation would be a windfall for lawyers, as potential lenders and borrowers seek legal advice. But for once, the legal profession, which almost always benefits whichever way the statutory wind blows, is standing mostly on the sideline for this one.
Two jurisdictions have ruled as to whether attorneys can advise clients in the pot industry, predictably in accordance to their governmental affiliation. The Colorado Supreme Court has said it’s OK for lawyers to do so. The U.S. District Court in Denver has ruled that it would be “unethical,” presumably because the counselor would be abetting an illegal practice under federal law.
And, once again, the feds speak louder than the state.
Pat Dalrymple is a western Colorado native and has spent almost 50 years in mortgage lending and banking in the Roaring Fork Valley. He’ll be happy to answer your questions or hear your comments. His e-mail is email@example.com.
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