Lending and cannabis

Lending and cannabis

While loan opportunities currently are limited, marijuana-related businesses hold considerable potential.

November 17, 2021

Twenty-five years ago, marijuana was illegal in all 50 states. Today, 18 states, two territories, and the District of Columbia have legalized small amounts of marijuana for adult recreational use, and medical marijuana is legal in 37 states.

The cannabis industry’s rise as a multibillion-dollar operation offers credit unions a promising new market, but one fraught with pitfalls. 


  • The cannabis industry’s rise as a multibillion- dollar operation offers a promising new market, but one fraught with pitfalls.
  • Lending opportunities are scarce due to federal legality issues, but some credit unions lend to marijuana-related business (MRB) staff and related entities.
  • Board focus: Passage of the SAFE Banking Act would prohibit federal regulators from penalizing depository institutions for serving legitimate MRBs.

Credit unions in states where marijuana is legal find themselves in a tricky crossfire between state and federal law.

While marijuana may be legal in some states, it remains illegal at the federal level. Financial institutions providing services to marijuana-related businesses (MRBs) could be in technical violation of federal law by facilitating the operation of an illegal enterprise.

But because federal regulators have stayed on the sidelines, some credit unions provide at least depository accounts to MRBs to get large amounts of cannabis cash off the streets.

“A business owner should not walk around with a duffle bag filled with cash,” says Chris Call, CEO at $93 million asset North Bay Credit Union in Santa Rosa, Calif.

His credit union has offered banking services—deposit accounts, debit cards, wire transfers, online bill payment, and automated clearinghouse payments—to MRBs for four years. 

But North Bay, like other credit unions, has stayed away from lending to the industry because of the possibility of federal seizure of business assets, which would impair collateral.

Call, however, has a bright outlook for the future of credit unions providing not just depository services but lending as more states legalize marijuana.

“We think there will be more pressure on the federal government to remove it as a Schedule 1 substance in the near future,” Call says. “We certainly don’t see any federal enforcement soon. So, the risk of collateral seizure is almost nonexistent at this point.”

Call recognizes a tremendous demand for capital in the cannabis industry. He says cannabis operators from across the country approach North Bay almost weekly, hoping it develops a lending program.

Currently, most MRB lending activity is tangential, with loans to MRB employees and related entities. But the industry holds considerable potential.

“Cannabis businesses are a lot more profitable than any other local business we might come across,” says Call. “In some cases, they’re much better run. They bring in people from Wall Street and Silicon Valley to run these operations. A lot of Harvard and Stanford grads are running cannabis operations.”

North Bay, the preferred banking partner for the California Cannabis Industry Association, recently created a credit union service organization (CUSO) called Higher Growth LLC to provide compliance services to financial institutions interested in serving cannabis operators.

As part of its offerings, the CUSO will work with independent investment funds and other financial institutions to create a pool of investable funds to lend to cannabis operators nationally.

NEXT: Lending opportunities

Lending opportunities

At O Bee Credit Union in Lacey, Wash., MRBs pay a $500 application fee and about $200 monthly to offset the costs of compliance, says James Collins, president/CEO at the $445 million asset credit union, which gives preferred pricing for those using armored car services.

Like North Bay, O Bee also provides services to MRB employees on the same basis as other members. This includes loans­—especially auto loans.

“Usually if you say your employment is in marijuana, most financial institutions will turn you down,” Collins says. “We take those members and they get the same rates as everybody else. But we don’t do anything that’s open-ended in case they want to divert the funds to their business.”

North Bay approaches MRB employees as they would those of any other legal business, Call says. “They’re pulling a paycheck and their income is sustainable and ongoing. We found them to be very good borrowers.”

O Bee also offers loan services to cannabis-related entities that have a degree of separation. Two years ago, for example, the credit union started making loans to landlords who are not involved with the industry but may have tenants who are.

“Most of our businesses are producers or processors,” Collins says. “So, if a landlord wants to build or renovate a warehouse and has a cannabis tenant, we’ll finance that. Most people hate tying up their own capital for that.”

‘Any dollar we get off the street and into the Federal Reserve system is another sigh of relief.’
Pat Neighbors

The ‘Emerald Triangle’

Vocality Community Credit Union lies in the Emerald Triangle in Northern California, an area named for its prolific production of high-quality marijuana. It offers a full range of depository services and, like other area credit unions, has beefed up its compliance efforts, says Pat Neighbors, CEO at the $160 million asset credit union in Garberville, Calif.

“We have a sophisticated, software-based fraud and anti-money-laundering system because we’re required to provide the Financial Crimes Enforcement Network and the U.S. Department of the Treasury with suspicious activity reports and currency transaction reports,” she says. “We who choose to bank cannabis recognize it’s part of our daily activity.”

Despite its small size, Vocality Community has eight full-time compliance staffers. “My compliance department is at least twice as big as it should be for a credit union our size, if not three times,” Neighbors says.

Numerica Credit Union in Spokane Valley, Wash., uses six to seven full-time staffers in two departments to monitor compliance for its cannabis banking services. In addition to using anti-money-laundering software, it conducts site visits, is in regular contact with the state Liquor and Cannabis Board, and routinely compares deposits to sales at MRBs, says Lynn Ciani, chief risk officer at the $3.2 billion asset credit union.

“You have to understand the industry top to bottom and take the time to know the cannabis regulators, as well as your state and federal regulators, so you can develop policies and procedures that protect your credit union and your cannabis business members,” she says.

Numerica started slowly, initially serving just county-based businesses before expanding when it was satisfied its controls worked.

For credit unions considering whether to serve MRBs, Neighbors and other credit union leaders warn the costs can be substantial.

“There are additional insurance expenses, alarm and camera systems, and dual custody every time a large amount of money comes in or goes out,” Neighbors says. “We have some of the fastest currency counters you can buy other than those at the Federal Reserve Board. It’s an expensive venture.”

Those cash counters require maintenance contracts because much of the cash that flows in is dirty, smelly, and sometimes moldy.

Vocality Community’s fee structure is designed to cover costs and generate a small profit without subsidy from other resources.

“We’re doing it for the benefit of our members, but it needs to add something to the bottom line,” Neighbors says.


NEXT: SAFE Banking Act

SAFE Banking Act

Many in the credit union movement hope for passage of the SAFE Banking Act, federal legislation that passed the House but has an unsure future in the Senate.

This legislation generally would prohibit federal banking regulators from penalizing a depository institution for providing banking services to a legitimate cannabis-related business.

“We are absolutely hopeful it will pass in some form that will allow lending with peace of mind,” says Neighbors, who takes every opportunity to lobby in the bill’s favor. “That’s where we expect to make some money because our biggest revenue driver is the loan portfolio.”

Numerica also supports the bill to clarify the current murkiness in this business. The U.S. has had five different confirmed attorneys general since 2009. As administrations change, so do local U.S. attorneys, each with their own prosecutorial discretion.

“Those changes create less certainty, and it’s hard to mitigate risk when you don’t know what the risk is,” Ciani says.

Even passage of the SAFE Banking Act won’t remove compliance concerns related to cannabis banking, according to Call.

“There will always be significant compliance issues around MRB banking that will be ongoing even if cannabis is fully legalized,” he says.

With the buzz around legalization, Call predicts there will be “more pressure on government officials to alleviate this dark cloud that has been hovering over the industry for decades.”

As for the risk of MRB lending, “just because it’s a cannabis business doesn’t make it more volatile than any other small farmer, manufacturer, or retailer once the legality issue is removed,” Neighbors says. “Any of these businesses could be a good credit risk or a bad one.”

O Bee caters predominantly to producers and processors, whose operations are capital-intensive, Collins says. He sees a huge upside in being able to lend to them in the future.

Often, the machines used to process marijuana cost upwards of $250,000 each, he says.

MRBs can get financing from the manufacturer, but that may require giving up some equity in the business, Collins says. “MRB owners hate to give up equity. And when they do, there are additional parties in the business and it becomes a problem for us, too.”

Credit unions that serve MRBs circle back to member service and public safety in their drive to ease federal regulations and treat legal businesses fairly and safely. 

Vocality Community, which serves a low-income area, is designated as a Community Development Financial Institution. That’s a driving force in its operations, Neighbors says.

“We have a lot of underserved folks who need our help. Our cannabis members are just one portion of this group who need credit union services,” she says. 

Public safety is a prime concern, too, especially with people sometimes carrying hundreds of thousands of dollars around in cash.

“People are having safes put in their homes,” Neighbors says. “Or not. Is the cash buried in the backyard? Under the mattress? What if a home invasion occurs and it’s the wrong address?

“Any dollar we get off the street and into the Federal Reserve system,” she says, “is another sigh of relief.”


This article appeared in the Winter 2021 issue of Credit Union Magazine. Subscribe here.