Pots of marijuana cash cause security concerns

DENVER — The unmarked armored truck rumbles to a stop in a narrow alley, and former U.S. Marine Matthew Karr slides out, one hand holding a folder, the other hovering near the pistol holstered at his hip.

With efficient motions he retrieves a locked, leather-bound satchel from a safe set into the truck's side and presses a buzzer outside the door. It swings open to reveal a cavernous warehouse filled with marijuana and a safe stuffed with cash.

Welcome to the rear guard of Colorado's rapidly expanding legal marijuana industry, where eager users pour millions of dollars — most of it in small bills — into buying pot, hashish, and marijuana-infused foods and drinks. All that cash adds up, and there are few places to put it: Federal regulations, which still classify pot as an illegal drug, make it difficult for marijuana producers to deposit their profits into traditional bank accounts.

And those cash-heavy small businesses make awfully attractive — and vulnerable — targets for criminals.

That's where Karr and the company he works for come in.

Heading through the warehouse where workers tend young marijuana plants, Karr greets a young woman, and the two empty a safe of tens of thousands of dollars in cash neatly packed in plastic envelopes. Like every room in this combined marijuana store and grow house, the smell of pot hangs heavy in the air. Karr double-checks the ledger, locks his satchel and hustles outside, where former cop Phil Baca waits at the wheel of the armored car.

Karr opens the truck's safe, pitches the satchel inside and climbs back into the passenger seat, an AR-15 rifle stashed behind him. It's a scene that plays out six times in three hours. Their take for the day: somewhere close to $100,000 in cash.

"For the first three months, people were just keeping the money everywhere — in the walls, in mattresses, at home," says Sean Campbell, CEO of Blue Line Protection Group, which provides marijuana security services, including Karr, Baca and the armored car. "And banks don't even want to deal with it. You have a quarter-of-a-million dollars in cash show up all at once. The counting time alone is going to take an hour."

The unusual problem of having too much cash is forcing business owners to hire security firms like Campbell's, especially after Denver police warned in June of a credible threat against marijuana stores and couriers.

Marijuana-store owners have suffered some smash-and-grab robberies over the last several years but surveillance systems and close police attention have solved many of them. Experts say those robberies were largely committed by amateurs, rather than sophisticated crime rings.

Campbell said he believes it will take a serious high-dollar heist to force smaller marijuana stores to take their security more seriously.

State law requires marijuana businesses to have security cameras and systems on the premises, and many have armed guards, but they remain easy targets. The stores and grow operations often are in remote industrial areas, in warehouses that have not been hardened against a determined intruder. Many stores have large amounts of pot sitting around in rooms secured only by flimsy wooden doors.

Options are limited, however. Unlike most other businesses, marijuana-store owners can't easily open bank accounts for fear of running afoul of federal law. Despite Washington state joining Colorado last week in legalizing sales of marijuana for recreational purposes and 23 states plus the District of Columbia permitting medical pot, the federal government still classifies the plant as an illegal drug more dangerous than cocaine or methamphetamine.

By opening a bank account, pot growers and shop owners run the risk of being charged with money laundering, because federal banking laws and regulations are deliberately aimed at tracking large flows of cash like those generated by both legal and illegal drug sales. A single such charge can bring decades in prison, and most banks and pot-shop owners don't want to run that risk.

"When you go into the business, and you know it's federally illegal, you're taking your chances," said Tom Gorman, who runs the federally funded Rocky Mountain High Intensity Drug Trafficking Area task force. "That's the problem when the state legalizes something that remains illegal at the federal level."

While declining to be quoted by name, many marijuana store owners interviewed by USA TODAY shared tales of playing cat-and-mouse with banks, managing to keep accounts open for only a few months at a time before getting shut down.

U.S. Treasury officials require banks to file what are known as "suspicious activity reports" whenever they suspect someone is trying to launder money. Anyone bringing in a pile of cash sets off internal alarms for bank workers, pot-shop workers say. Federal financial-crimes investigators encourage banks to report suspected marijuana transactions because pot remains illegal at the federal level.

"Our goal is to promote financial transparency and make sure law enforcement receives the reporting from financial institutions that it needs to police this activity and to make it less likely that this financial activity will run underground and be much harder to track," said Steve Hudak, a spokesman for the Treasury Department's Financial Crimes Enforcement Network.

Tax-and-marijuana attorney Rachel Gillette said she's seen banks' concerns firsthand — several banks she deals with said they wouldn't let her open an account, even though both the federal and state government are allowed to deposit tax payments from pot sellers. Gillette said federally regulated banks say it's just easier for them not to risk getting their hands tainted by pot.

"They literally told me they would not take my account because I do business with the marijuana industry," Gillette said. "That seems fundamentally unfair — the state is taking that money and putting it in the bank; the IRS is taking that money and putting it in the bank."

Gillette is suing the IRS on behalf of one of her clients who has been paying federal payroll tax bills with cash. The IRS calls for electronic payments and adds a 10% surcharge for cash payments, she said. With some marijuana businesses paying payroll taxes of $100,000 a quarter, those penalties are substantial.

Colorado has tried to solve the problem with a new state law permitting creation of marijuana banking cooperatives, which would have the power to accept deposits, lend money and make electronic payments. But that system likely won't begin operating for at least another year, said Gov. John Hickenlooper, and even then federal officials would need to bless the plan.

The amount of cash already flowing through the fast-growing system has forced state tax officials to change how they accommodate payments. While Colorado allows businesses to pay their taxes in cash, most pay electronically. Marijuana businesses, however, must trek to a central Denver office, cash in hand, where they're met at the curb by armed guards and escorted inside.

"Some people walk in with shoe boxes. Some people have it in locked briefcases. We've had people bring it in buckets," said Natriece Bryant, a spokeswoman for the Colorado Department of Revenue.

Campbell, who runs the armored-car company, said the vast cash flows are a clear come-on for criminals. He said he's working with banks to offer alternatives for marijuana businesses, including vault services. For many in the marijuana industry, the scene from the Emmy-winning television series Breaking Bad of a storage unit filled with drug cash hits uncomfortably close to reality.

Says Campbell, "You're effectively creating a magnet for crime."