Maps Credit Union in Salem, Ore., has helped remove millions of dollars in cash from the streets by providing basic banking services for cannabis-based businesses, says Rachel Pross, chief risk officer.
In the fall of 2013, James Collins heard gunshots while relaxing at his home in Central Washington. It turns out a neighbor had an illegal marijuana grow operation, attracting three armed men who showed up at his house.
“They weren’t after his crop; they were after his cash,” recalls Collins, president/CEO at $301 million asset O Bee Credit Union in Tumwater, Wash.
The experience underscores the public safety hazards created with the presence of cash businesses—particularly high-volume cannabis dispensaries.
Serving these types of businesses remains a murky prospect from a legal standpoint, at least on the federal level. Recreational marijuana is now legal in 10 states and the District of Columbia, while medical marijuana is legal in more than 30 states, according to Business Insider.
Because cannabis remains illegal at the federal level, however, it is almost entirely a cash sector. Basic banking services are hard to come by for legitimate businesses, and credit card processing is out of the question.
While some community financial institutions have stepped forward to fill the vacuum, reliable market statistics are elusive for logical reasons.
“There’s a hesitancy for financial institutions getting into this space from putting a target on their backs and jeopardizing relationships with vendors and correspondent banks,” explains Deirdra O’Gorman, founder/president of DX Consulting, which advises financial institutions setting up cannabis programs. “The rule of thumb is, ‘keep quiet.’”
The same holds for cannabis businesses. Once they manage to obtain an account, proprietors don’t want to become too vocal and risk losing the convenience.
Roughly 30 financial institutions are serving cannabis businesses at scale, but O’Gorman points to an indicator she believes reflects growing activity: Financial institutions filed 62% more cannabis suspicious activity reports (SARs) at the end of 2018 compared with 2017.
According to the Financial Crimes Enforcement Network (FinCEN), 551 financial institutions filed SARs related to cannabis in the fourth quarter of 2018. However, some of this activity could be people filing termination SARs for accounts discovered transacting in cannabis, or financial institutions may be managing only one or two accounts, O’Gorman says.
Here, several credit unions share their experiences as early providers of cannabis-banking services. They shed light on an important issue and prepare other credit unions for the demands of an expanding sector with major implications for public safety, financial inclusion, and credit union economics.
Credit Union Magazine’s Spring 2023 issue features the 2023 Credit Union Heroes and examines CUNA-League advocacy priorities, board leadership, the impact of financial well-being efforts, fee-related compliance issues, predictions for the year ahead, and more.
