Wednesday, March 25, 2015

Be a Pot Friendly Banker to Corner a Market

Colorado is seeing plenty of marijuana sell through the new legal dispensaries. The media trumpets all the money pouring into the schools. See kids, sin taxes and condoning drugs are okay as along as the money is doled out by the progressive government for schools. Someone has to make sure the weed stores are meeting government approved rules and regulations. Tough thing for the stores are the banking handcuffs they are in per the federal government and the stigma of doing business with these stores. In an age where monopolies yield huge earnings, someone should corner the weed banking market.

Right now legal weed stores have limited banking options. The banks that operate in multiple states want to stay away because of the crossing state lines and incurring federal wrath. Other banks are just nervous because of the old stigma of doing business with “those kind of people”. Some stores have found small credit unions that will work with them. The state of Colorado tried to help by setting up a pot bank co-op, but the feds never came through with approval. The stores have tons of cash for their transactions so the cash management becomes an issue. Banks give a fake concern over the extra problem of handling such large amounts of cash. It is a fake concern because on a weekly basis, it’s no more cash than what an armed guard could take care of with a truck. The real concern is the Feds shutting it all down. What do the stores do now for payments and bigger transactions? They use certified checks and money orders for everything. Every single vendor, whether goods supplier or services vendor, they have they use a certified check or money order. My company passed on doing business with them due to this.

The longer Colorado goes without any major crime flare up, the longer the stores stay in operation and have no “THEY SOLD IT TO KIDS” headlines, the more concrete the stores existence will be. The Feds could end this all quickly, sure, but without a massive media campaign about its dangers, they will look awful. It would be hard to raid stores as well as the left is pushing marijuana legalization virtually everywhere. Why? It’s a get out the vote scheme for battleground states. It also is a nice soothing thing for the peasants as they get screwed over more and more. The viability of the pot stores is there, so why not corner the market and open a compliant bank that is heavy of the pot store business? One could build an in-state monopoly and mint a fortune.

There is a problem with every safeguard we put in for banks that started way back in the 1930s. Glass-Steagall was nice for separating banking (or so would FDR's financial backers have me believe), but I am talking about the FDIC. Once everyone knew their deposits were covered by government insurance, the individual customer had nothing to chase but yields for savings and rates for loans. The ideas of a bank’s stability, trustworthiness and history as a factor in the competition for customers were thrown out the window. Banks did not have to compete on intangibles, so they had to be cutthroat on the hard numbers. Follow this through, and of course bigger banks were going to gobble up smaller banks due to cost advantages they enjoyed and to pick up market share before the other big guy. This is why we are where we are and why the big banks dove head first into derivatives, but that is the subject for another post.

By dealing with a tougher industry that everyone else is shying away from, a bank could suddenly have a moat for their business. Their underwriters on loans could charge these weed stores higher rates. They can play hardball with these stores on fees and other items, all the while playing normal bank to their other customers. No money laundering required, these stores just need simple business services and easy records for tax purposes. This is why it is staggering that no small, Colorado bank has made the leap to try to do this. Bank consolidation has probably eliminated many small Colorado banks, but still, why not start one up? A bank would not have to turn weed stores into 90% of their clientele, but even a 50% number would allow for fatter profit margins. There would be higher costs to doing business due to the security precautions for dealing with all of that cash, plus there is the regulatory risk.

This is America, and I am shocked no one has tried this. Maybe we have sucked all the entrepreneurial spirit out of competent people by making them so scared of the Litigation Hostage System. Countless financial service firms will focus on specific industries that others do not touch or are cautious about because of this same phenomenon. Some insurance firms turn attorneys, doctors or even municipalities into 15%-40% of their business because no one else wants to deal with them. Several years back, Sun Life bought a bloc of physician only insurance business from a firm that solely dealt with doctors. Sun Life had no expertise with medical risk, and wanted to grow their doctor bloc but were afraid of a slow growth plan hurting their overall bloc. By buying the bloc, they suddenly picked up expertise in dealing with physicians so they could then organically grow that sector. Now marijuana legislation will pick up steam with the help of the progressive steamroller. Build up your little bank that specializes in weed stores. You will make plenty of money. When the day comes where the Feds re-schedule marijuana, JPMorganChase will come knocking on your door with an attractive offer to buy your book of business.

2 comments:

Steve Sailer said...

Peyton Manning bought a bunch of crummy fast food restaurants to cash in on the legal dope in Colorado boom without having to get directly involved with dope.

peterike said...

These pot stores seem ripe for ethnic takeover. And no, I don't mean Italians.

Figure Indians, Chinese, Israelis or Eastern Euros like Bulgarians or Russian Jews. These groups are quite expert at laundering money (switching to a cash only system) and shaking down the American system, and they have their own shadowy banking communities that could serve very well. I would not be surprised at all if we start to see consolidation of these stores and a steady takeover by one particular ethnic group that gets a jump on it.