The many layers of cannabis banking

Cannabis banking is the onion of the financial services world: Slice into it and you’ll find new, increasingly complex layers throughout.

Marijuana’s illegality on the federal level makes serving marijuana-related businesses (MRBs) a delicate prospect, even in the more than 30 states where it’s legal in some form.

Lending directly to MRBs is especially fraught with peril. Doing so could lead to the federal seizure of business assets and even incarceration. But there’s no denying the business potential.

“I’ve yet to see someone do a direct loan to a cannabis-related business,” says James Collins, president/CEO at $445 million asset O Bee Credit Union in Lacey, Wash. “We’ll be among the first once we get over that ‘you’re going to prison’ thing.”

While O Bee and other credit unions lend to MRB employees and related entities such as landlords, and earn fee income from servicing MRB accounts, revenue isn’t the sole motivator. The safety issues involved with carrying and storing obscene amounts of cash—hundreds of thousands of dollars at times—are undeniable.

Collins has witnessed this hazard. Soon after O Bee began serving MRBs, he overheard gunshots down the street from his house.

“It was a gunfight in the middle of the neighborhood; a home invasion at an illegal marijuana grow operation,” he recalls. “They didn’t want the product. They wanted the cash. I thought, ‘If we can get the cash out of the legal businesses they’re much less likely to get robbed.’”

That’s a clear justification to pass the SAFE Banking Act, which would prohibit federal regulators from penalizing depository institutions for serving legitimate MRBs.

Another layer to the MRB onion: Simply declining to serve MRBs isn’t enough, says attorney Bruce Pearson.

“If you’re going to be a ‘no’ shop, you need to have operational procedures to back that up,” he says. “Are you actively looking for MRBs that are disguised as car washes and dry cleaners?”

If not, you may be subject to federal prosecution. 

Happy slicing!

BILL MERRICK is deputy editor for Credit Union National Association.