New Hamsterdam, CO

Oscar Wilde said "Life imitates Art far more than Art imitates Life." Obviously he was a fan of The Wire. I say this because aspects of Season 3's Hamsterdam plotline are playing out in Colorado.

If you haven't seen The Wire, here's the premise of Hamsterdam in a nutshell. In an effort to reduce violent crime in his territory, Major Bunny Colvin tells all the drug dealers and junkies that they can do whatever they want within a particular part of town that is completely abandoned. He tells them something like "It's just like Amsterdam" and the crackheads think he said Hamsterdam. Hilarity ensues.



In January 2014, Colorado became the first state to legalize recreational marijuana. The results are a bit like Hamsterdam--a comedy of unintended consequences. For example, banks won't offer services to marijuana stores because they are illegal enterprises under federal law, and no one wants to be a party to money laundering. As a result, marijuana is a cash only business in Colorado and the stores have nowhere to put the cash other than safes and lockboxes. Almost instantly, they became prime robbery targets. Sort of like this.



In response, marijuana security firms cropped up. Apparently they're all staffed with Russian hitmen.



This drives up the cost of business, so an ounce of weed in Colorado is $400!



In response, the Colorado legislature made like Stringer Bell and set up a co-op.



Well, not exactly. They passed the Marijuana Financial Services Cooperative Act which permits the creation of cooperative banks to serve marijuana businesses. It'll never work.

First, it requires that each co-op receive approval from the Federal Reserve, and that ain't happening. Even if it does, operating such a co-op would be a compliance nightmare. For example, the co-ops would be required to comply with the Bank Secrecy Act, meaning that they would have to report any suspicious activities they see. Every marijuana-related transaction is a suspicious activity under the Act so that's a lot of paperwork. And the co-ops would also have to comply with various DOJ mandates, requiring insanely in-depth due diligence on all firms who bank with the co-op beginning when the open an account and continuing throughout their participation in the co-op.

Second, the Marijuana Co-op Act says that deposits in the co-ops will not be insured. I have to imagine that these co-ops will be massive targets for theft--instead of picking off pot shops one by one, enterprising robbers will hit the co-op because that's where all the cash is aggregated. These endeavors aren't going to be big operations like BOA or Citi, they'll be mom-and-pop shops operated for and probably by potheads. So I doubt they will have state-of-the-art security systems. Add in the usual risk of fire or natural disaster and it's tough to hand over all your money to an uninsured bank.

Finally, who the hell wants to open a bank to provide services to companies that openly flout federal drug laws? If we elect some fire-and-brimstone conservative in 2016, he or she could put the kibosh on all this in a hurry simply by deciding to enforce federal laws in Colorado, shutting down the pot shops and the co-ops, and then seize all the money! Oh, and they'd send the bankers to jail for money laundering. At which point the bankers would react like this:



Thus it appears that the legal sale of marijuana as currently constituted in Colorado is unsustainable. Cash keeps rolling in but there's only a finite amount of space under mattresses and inside safes to put it all. Until someone comes up with a safe, secure, reliable, and legal way to store marijuana-related proceeds, Colorado's pot shops may put themselves out of business because they are so successful. That's some crazy macroeconomics for you.