Although 30 states and the District of Columbia have legalized some form of cannabis, and 400 U.S. financial institutions provide accounts for marijuana-related businesses (MRBs), the federal government still classifies the drug as a prohibited Schedule 1 narcotic alongside heroin, LSD, and ecstasy.
“This has created an untenable uncertainty in the banking system,” says Brian Knight, executive vice president and general counsel for the National Association of State Credit Union Supervisors. “Congress needs to address this either way so we know what the rules are and we can move forward.”
Knight addressed the 2018 CUNA CFO Council Conference Tuesday in Austin, Texas.
Regardless of whether credit unions plan to serve MRBs, they need to understand the implications of their decision, he says. “Those of you who are out have more to consider than those who are in. Those who are out need to think about what ‘no’ means.”
For example, most credit union leaders who opt out don’t want to serve “plant-touching” businesses, such as growers and sellers, Knight ways. But what about a landlord who gets rent from an MRB and deposits it at the credit union?
And what about MRB employees, the restaurant across the street where MRB employees pay for lunch with “weed money,” plumbers and electricians who work at the dispensary, or attorneys and accountants who do work for MRBs?
“And,” Knight asks, “is this just for new accounts? What about current members who get into this? Will you kick them out? You need to answer these questions as you go down the path of ‘no.’”
Also, do you know if your shared branching partners serve MRBs? Can you serve those members?
The path is clearer for those who decide to serve MRBs, Knight says. But before doing so, credit unions should consider four primary risks:
“If you lend to an MRB, treat it as an unsecured loan,” Knight says, because foreclosure might not be an option due to lingering legal questions. “Also, you’ll want to crawl all over the people who own these businesses” to make sure they’re on the up-and-up.
“Even with all of this,” he adds, “you’re still at risk of being charged with money laundering.”
The issue isn’t likely to go away. MRBs are expected to become a $30 billion per year industry by 2020, Knight says. And 60% of the U.S. population live in states where recreational or medicinal marijuana use has been legalized.
He advises reviewing guidance from the Federal Financial Institutions Examination Council about how to serve MRBs in a way that’s consistent with your BSA obligations.
“It’s a permissive document,” Knight says, “if you can get past the part where you can go to jail.”
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