April 28, 2015
Dozens of dispensaries in Colorado have set up “shadow” banking systems that allow them to accept credit and debit cards from customers – even though such practices could set them up for potential money laundering charges, according to a report by a local TV station.
While medical marijuana companies have been using shadow banking systems for years, the high percentage employing it in Colorado surprised some banking experts, according to the report.
Major credit card companies and banks do not allow cannabis purchases given the fact that marijuana is still illegal federally. To get around that, cannabis companies set up separate holding companies that interact with credit card firms and banks, and act essentially as a front for cannabis businesses. That way, key words such as “marijuana,” “cannabis” or “dispensary” don’t show up in credit card or bank monitoring programs.
And conversely, the name of the actual shop where the customer makes a purchase isn’t reflected on a credit or debit card statement – or on the receipt from the purchase.
Federal regulators haven’t shown a desire to actually target vendors that employ this strategy. If a bank or credit card company finds out, though, the account is often terminated.