Despite the locations of these early movers, “I definitely don’t see this as a West Coast issue,” says Pross, who also believes there is potential for a viable financial services business in states that have approved cannabis for medical use only.
VSECU in Montpelier, Vt., is evidence of this opportunity. The state’s legislation legalizing medical marijuana limits the issuance of licenses to five dispensaries.
Some of these businesses approached VSECU for services, prompting a due-diligence process.
“Federal banks wouldn’t touch it, and state-chartered institutions were leery as well,” says Greg Huysman, director of business services and lending at the $780 million asset credit union.
Before proceeding, VSECU consulted closely with Vermont authorities, who wanted to see an established entity facilitate the removal of cash from the streets.
Among the business benefits, VSECU’s enhanced compliance infrastructure positioned the credit union to serve the subsequently legalized hemp and CBD segments. Out of an abundance of caution, VSECU rolls these accounts under the same cannabis framework.
Like O Bee, the credit union has seen an inflow of individual accounts from employees of these companies, who ran into bureaucratic roadblocks elsewhere.
New York state took a similar approach to medical marijuana legalization, issuing a handful of licenses.
SEFCU in Albany, one of the state’s largest credit unions, conducted a “long and deliberate due diligence process” which led to account openings for two of these licensees, says Michael Castellana, president/CEO of the $3.8 billion asset credit union.
As the process neared completion, however, the Federal Reserve Bank of New York expressed reservations, leading SEFCU to reverse course rather than put its Fed account at risk.
SEFCU is now waiting for a federal solution or safe harbor legislation that would allow it to provide banking services to this large and complex industry.
“It’s an easily solved problem, but it begs for a federal solution,” Castellana says.
Even credit unions with no desire to pursue cannabis accounts are likely more involved than they realize.
“In states with both recreational and medical activity, it’s hard to keep those funds out of your institution,” O’Gorman says. “Invariably, there will be an electrician, attorney, or someone else providing services to those licensed businesses whether you like it or not.
“Some financial institutions enter the field because they’ll learn more and have information at their fingertips to intelligently assess the risk,” she continues. “It’s a situation that can’t be sustained,” Messick says. “It has to change.”
Fortunately, the credit union movement has some innovators to boost the learning curve.
CUNA wrote in support of House and Senate companion bills that would clarify the federal treatment of marijuana where it is legal and permit credit unions in those states to serve members’ related needs.
The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act of 2019 was introduced by Sen. Elizabeth Warren, D-Mass.; Sen. Cory Gardner, R-Colo.; Rep. Earl Blumenauer, D-Ore.; and Rep. Dave Joyce, R-Ohio.
“The STATES Act would provide credit unions and other financial institutions accepting deposits from, extending credit, or providing payment services to an individual or business engaged in marijuana-related commerce in states where such activity is legal with legal protections, so long as they are compliant with all other applicable laws and regulations,” the letter reads.
“Furthermore, the legislation makes clear that compliant financial transactions do not constitute trafficking or result in proceeds of an unlawful transaction, providing additional clarity to credit unions and the members they serve.
“This is a reasonable and sound approach. We look forward to working with you to advance your legislation into law.”
The SAFE Act, introduced in the House, has similar aims.
While CUNA takes no position on legalizing or decriminalizing cannabis, credit unions in states where it is legal have members and member businesses that need access to financial services.
Rachel Pross, chief risk officer at $745 million asset Maps Credit Union in Salem, Ore., testified on CUNA’s behalf before the House Financial Services Committee in February.
She detailed how the credit union has helped remove millions of dollars in cash from the streets of its community, and how providing legal cannabis-based businesses with access to financial services is a public safety issue.