Colorado Could Be Next in the Race to Bank Crypto (and Cannabis)

State policymakers want Colorado to be the new Wyoming, creating friendly legislation to draw crypto companies.

AccessTimeIconOct 24, 2019 at 10:00 a.m. UTC
Updated Sep 13, 2021 at 11:37 a.m. UTC

The Takeaway:

  • Members of Colorado's Blockchain Coincil have begun the process of creating special-purpose banking legislation to cater to crypto companies.
  • The aim is to get a bill in front of Colorado lawmakers by December.
  • Additionally, Colorado is exploring the option of extending crypto-specific banking laws (similar to those passed in Wyoming) in order to cater to the underbanked cannabis industry.
  • Colorado is proposing a joint initiative with Wyoming, New Mexico, Arizona and others to bring blockchain legislation to the attention of federal lawmakers.

Colorado could be the next Wyoming.

Following the Cowboy State’s passage of 13 blockchain-friendly laws earlier this year, its neighbor to the south is now looking to help crypto companies get bank accounts.

Earlier this month, former members of Colorado's Blockchain Council convened the first meeting of a working group focused on legislation to authorize the creation of special-purpose banking institutions in the state. Colorado’s Office of Economic Development & International Trade (OEDIT) assisted the group.

To some degree, the proposed bill will likely emulate the Special Purpose Depository Institutions (SPDI) law passed in Wyoming. Indeed, thanks to Wyoming’s work on blockchain legislation, Colorado (and other U.S. states) can save time and effort by perusing 200 pages of legislation, chock-full of banking complexity.

Colorado’s new special banking working group continues the work done over the last 12 months by the Colorado Blockchain Council. In March, Colorado signed its Digital Token Act, also similar to Wyoming’s token law.

To be sure, Colorado’s proposed crypto-banking bill has some lawmaker support. Backing the initiative, State Sen. Jack Tate told CoinDesk in an email:

“My sense is that we will continue to support blockchain industry growth in the Colorado economy while at the same time look within our own government sector for practical blockchain applications that warrant funding.”

Off to the races

The enactment of multiple state laws around crypto is good for everyone, but clearly there’s a bit of competition between states.

One attendee at Colorado’s first SPDI group meeting said his impression was it might “steal Wyoming’s thunder.”

The Colorado banking group’s roadmap was set out with military precision, according to Joseph Pitluck, CEO of FreeRange, which helps banks and trust companies manage digital assets. He told CoinDesk:

“I think Wyoming is going to be surprised. Colorado has a pretty impressive timeline for the SPDI to try and get everything lined up by December. It was less an informal discussion and more like invasion plans being drawn up, like a D-Day landing or something. They are very organized and pretty serious contenders.”

New Mexico is also looking at ways to get SPDI legislation to pass as quickly as possible, said Pitluck. New Mexico’s Legislative Council is busy drafting a version of the Wyoming bill with a view to having a hearing in mid-November, according to New Mexico House Commerce Committee chair Antonio Maestas.

In the case of Colorado, Eric Kintner, a partner at law firm Snell & Wilmer and the co-chair of Colorado’s SPDI working group said they had to “boil it down to a bi-weekly schedule to get a marker down by December.”

In terms of timelines, Kintner told CoinDesk:

“The legislature then meets for five months and this may have to go through a couple of committees because it involves banking. So we would be looking at about the end of next year.”

Not so fast

However, former Wall Street executive Caitlin Long, the gubernatorial appointee to the Wyoming Blockchain Task Force, pointed out that it took Colorado two, 120-day legislative sessions to pass its utility token law.

The SPDI is a much heavier lift, she said, particularly when factoring in the incumbent banking system. Long told CoinDesk:

“I wish Colorado luck but I am very skeptical that they will be able to pull it off. A big reason is the incumbent banking system, which was a big obstacle to us in Wyoming and is much stronger in Colorado than it was in Wyoming.”

Kintner said he was “cautiously optimistic” when it comes to the state’s bankers. The Colorado Bankers Association has been attending Blockchain Council meetings, Kintner said.

“They have concerns that will have to be addressed," he said, "but I don't have a sense that they are completely opposed to it.”

Stepping back, there are various cultural and economic factors at play here. In contrast to Colorado, Wyoming is a small state with less in the way of taxes to collect. Wyoming also has a history of blazing a trail with commercially focused and innovative laws, such as the Limited Liability Company Act back in the late 1970s. Some in Wyoming feel the state lost out to other states like Delaware on LLC innovation and are keen to retain a lead with blockchain.

“Maybe they [Wyoming] need to find ways to raise revenue and they view crypto as maybe a cottage industry that might set up shop there,” said Kintner. “Maybe that works and maybe that doesn't; I don’t know. But I don’t view this process as necessarily having to be competitive one where only one state will benefit.”

Looking ahead, Kintner even suggested a joint initiative among the likes of Wyoming, New Mexico and Arizona, to pull together with a view to being heard at the federal level.

Said Kintner:

“One of the areas that we are focused on is trying to convene kind of regional conferences where like a front range conference, so Congress will realize Wyoming and New Mexico and Arizona and Colorado all have this so why don't we look at it at more federal level."

Cannabis economy

Colorado has experience when it comes to creating a concerted push for federal law changes with its flourishing cannabis industry. And at the state level, the SPDI group is exploring whether it can service both the unbankable crypto realm as well as its chronically underbanked cannabis industry.

OEDIT Program Director Jana Persky told CoinDesk:

“We are specifically asking for industries like cannabis to get involved in this working group. Right now it’s hard to say what the actual solution will be, but we are actively working to bring members of the cannabis industry into the conversation to try and find a solution that benefits as many people as possible.”

Similar to crypto, cannabis companies inhabit a regulatory lacuna and struggle to get banking services. Colorado’s cannabis industry has been hamstrung between state and federal law for some years now, and has evolved to the point that over 30 banks and credit unions quietly provide services to the multibillion-dollar industry, according to the Colorado Bankers Association.

Meanwhile, the Secure And Fair Enforcement (SAFE) Banking Act, designed to legally bank cannabis companies at the level of federal regulation, has been passed by the U.S. House and lobbyists expect there is a good chance it will go through the Senate and be signed by the end of this year.

On the subject of cannabis and blockchain potentially overlapping, Tate, the state senator, told CoinDesk:

“It’s not necessarily overlap – it's just that those two industries face similar circumstances. ... I think there is a general intellectual curiosity as to how the marijuana industry is challenged as compared to blockchain businesses, but ultimately our group is focused on blockchain technology."

The cannabis industry is not only more mature than crypto, but the financial stakes are also higher, said Kintner.

“On the face of it,” Kintner said, an SPDI bill like the one created in Wyoming for crypto might work for cannabis too. But another consideration on the table for Colorado is lending, which would be a very different animal from the Wyoming SPDI: the latter is non-lending and not FDIC insured, requiring crypto businesses to hold reserves of cash equal to 100 percent of their deposits.

“We are not sure whether it should be something like Wyoming has done or something totally different," said Kintner. "It’s an open question right now whether this [cannabis] fits within what we are trying to do or whether it should be separate or whether the current landscape is such that we don't need to do anything further."

The official position held by Colorado banks is that there needs to be a change to Federal law. Amanda Averch, a spokeswoman for the Colorado Bankers Association told CoinDesk:

“From day one, we have said the solution to the conflict of state and federal law regarding cannabis in this state is an act of Congress. I can’t really speak to blockchain and crypto which seem to be a whole set of different challenges.”

Wyoming's Long agreed that marijuana was probably a logical motivation for Colorado to proceed with an SPBI initiative, but added:

“I don't think the impetus for Colorado to try and copy Wyoming is marijuana. I think it's that many people in the industry know what's about to happen, which is about $20 billion of assets are about to come into Wyoming.”

*This article has been updated to show Colorado’s Office of Economic Development & International Trade (OEDIT) did not convene the group meetings as was originally stated.  

Colorado dispensary image via Shutterstock


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