Cannabis and Credit Unions: Things to Know

By Eric Ives
October 10, 2019

According to a recent report that was released by the U.S. Treasury Department’s Financial Crime Enforcement Network (“FinCEN”), an increasing…

According to a recent report that was released by the U.S. Treasury Department’s Financial Crime Enforcement Network (“FinCEN”), an increasing number of financial institutions are willing to work with cannabis businesses. Figures show that as of September 30, 2018, 111 credit unions and 375 banks were managing marijuana business accounts.

These numbers demonstrate that there is a steady growth of financial providers who are willing to engage with the marijuana industry, despite its federal illegality. This report confirms what cannabis business lawyers have noted over the past few years in Oregon and Washington; the majority of licensed marijuana business clients in these states are banked, and it isn’t as difficult as it used to be to get a basic merchant account.

The push for legislation that would allow banks to conduct business with marijuana companies without the risk of federal enforcement action is quickly gaining momentum, and credit unions are playing a key part.

Back in March, the National Association of State Treasurers introduced a resolution that calls for “common-sense federal laws and regulations” for businesses in states that have legalized marijuana for medical or recreational use that is obliged to deal with large amounts of cash.

As more states liberalize cannabis-use laws, credit unions and banks wonder if they should capitalize on this huge new market by offering essential financial services to dispensaries and other weed-related businesses.

Who is Leading the Credit Union Movement in the Cannabis Industry?

There have been a number of credit unions that have entered the marijuana arena, but there’s one CEO and her Credit Union who are leading this movement. Sundie Seefried, together with the board at Partner Colorado Credit Union, has set up a program to provide financial services to Colorado’s cannabis industry. They offer their services to law-abiding marijuana companies – the ones that document all transactions and obey the law.

Credit Unions really should be spearheading the cannabis issue. It’s no longer a moral issue. Whether you agree with the concept of legalized cannabis or not isn’t important. Not having a financial services option means that there is a large amount of cash on the street. This forces the marijuana industry to pay its employees, suppliers, bills, and taxes in cash. With this much cash on the street, crime is likely to follow.

Regulators and policymakers need to offer leadership on this issue. We need financial regulators, including the NCUA, and Congress to work together to bring stability and safety to the marketplace.

Moving Away from the “Green Stuff”

As marijuana was previously a banned substance in most states, those wanting to purchase and sell it, relied solely on cash. While recreational marijuana may now be legal in quite a few states, and medicinal marijuana legal in many more, a lot of financial institutions are reluctant to conduct business with cannabis retailers, due to the controversial nature of the industry. This means that many operations are still forced to use cash.

However, there are several credit unions in various states who offer basic financial tools to these businesses, including access to checking accounts, online banking, cash management, debit cards, and payroll services. By providing these financial services and tools, these institutions hope to help put cannabis merchants on the path to financial legitimacy.

Making digital banking services available to the marijuana industry allows them to move away from cash – a shift that could make the industry a lot safer for these businesses and their staff.

Credit Unions that Serve Marijuana Businesses

While serving marijuana businesses have not yet gone mainstream, a growing number of credit unions (up 24%) have been doing this to some degree.

Partner Colorado Credit Union

After a six-month pilot program in 2014, Partner Colorado Credit Union formally entered the business in early 2015. Today they offer their services to approximately 240 cannabis-related firms via its credit union service organization subsidiary, known as Safe Harbor Private Banking. The companies include dispensaries and retailers, processors, growers, and ancillary supplies and service providers.

Maps Credit Union

This Oregon-based credit union has been offering banking services to cannabis-related businesses since 2014. Maps are serving about 500 marijuana businesses, though it doesn’t advertise its services and the firms must sign an agreement not to talk about their banking relationship.

O Bee Credit Union

O Bee is based in Washington, and they credit the structure of the state’s licensing system, enabling full legal cannabis use, for making it easier for the institution to bank cannabis since 2014.

Public Safety, Not Profit, is What Motivates Credit Unions

Up until now, we have viewed the topic of cannabis and credit unions in a positive light. However, it’s important to note that this is by no means an easy industry to be in, and the associated rewards are, in fact, very limited.
With the threat of federal prosecution always looming, the tiny profits that are associated with cannabis banking are a poor incentive for getting into the business. The few credit unions who have agreed to work with cannabis producers are limiting these accounts to no more than 5% of total deposits to avoid the risk of creating a liquidity risk.

Since the government has the power to change the rules at any point and without notice, credit unions need to have enough cash in their vault to be in a position to return the full value of all their cannabis deposits in a single day while still servicing all of their products.

With all the upfront cost, no assurance that the rules will remain consistent, and little possibility of short-term returns, the main motivation for those financial institutions who are working with marijuana-related businesses isn’t profit, but public safety. Essentially, they’re willing to take on the risk of federal prosecution to protect the community from the threat of crime that is associated with an all-cash market.

Final Thoughts

The cannabis industry is a very tricky one for credit union and bank executives to size up. At this stage, credit unions are the ones taking risks. But we can’t overlook the obvious – as soon as this practice becomes more commonplace – there’s no doubt that the bankers will swoop in an attempt to dominate the market.

Large banks already understand the profit opportunities associated with the marijuana industry, but they want the credit unions to serve as the legal and regulatory guinea pigs. On a positive note, it’s great to see an increasing number of financial institutions who are willing to do business with cannabis-related firms. We can only hope that this movement will continue growing so that more businesses can move away from working solely with cash.
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