Cannabis banking: Keys to success

When U.S. Eagle Federal Credit Union in Albuquerque, N.M., began researching cannabis banking services, the board and leadership team worried members might not like the typically conservative financial institution getting involved in this line of business. 

They worried needlessly. 

A market analysis and member survey revealed that 85% supported the availability and use of medical cannabis, 58% would seek out organizations that support cannabis businesses, and 60% would patronize a financial institution that provided these services, says Phil Forbert, U.S. Eagle Federal’s director of cannabis business development. 

He and Troy Garry, executive vice president/chief financial officer at Sound Credit Union in Tacoma, Wash., shared their respective forays into cannabis banking during the 2022 CUNA Finance Council Conference Monday in Las Vegas. 

U.S. Eagle Federal formed a separate entity for cannabis banking, Aery Group, to keep a level of separation from the credit union.  

After launching in 2020, the credit union currently serves 79 cannabis businesses and has 120 to 150 in the pipeline, Forbert reports. The goal is to create a sustainable, not necessarily profitable, line of business. 

Sound Credit Union serves 130 cannabis businesses, and adds two to three accounts each month, Garry says. 

Forbert and Garry offer several keys to success for cannabis banking: 

Do your research. Both credit unions took more than two years to learn the ropes about the cannabis industry—and were still surprised after they launched.

“The industry has many tentacles,” says Forbert. “As soon as you think you know what the business is, you find more players,” including courier services, lawyers, consumption houses. “There are a wide variety of ways to take advantage of the industry.” 

In Washington, no guns are allowed on cannabis premises, Garry explains. That includes courier services that transport cash. Most cash courier services require drivers to carry firearms, which limits options for this service. 

Involve the board. The Sound Credit Union board had concerns about their personal liability because cannabis is still prohibited federally, Garry says. 

Plus, some board members are personally opposed to cannabis. 

Understand the compliance requirements. Sound Credit Union’s Bank Secrecy Act (BSA) team spends 40 to 60 hours on due diligence on each account before determining whether to open it, Garry says.  

It added three BSA compliance specialists, and split the BSA team into two segments. 

U.S. Eagle Federal started with three employees in its cannabis compliance area and now has six. It also provided six months of staff training before its soft launch. 

Implement a comprehensive monitoring program to prevent fraud. This includes monitoring publicly available information for adverse information about the business and its related parties, as well as suspicious activity including red flags described in Financial Crimes Enforcement Network guidance. 

Create the right fee structure. Initially, Sound Credit Union’s account fees were too low, Garry says. It now assesses a $500 application fee and another $500 fee when accounts are approved. 

“This is how we weed out nonserious businesses and recover some costs associated with due diligence,” he says. 

The credit union also raised its monthly minimum fees from $250 to $350. 

Understand that lending opportunities are limited. Lenders can’t include any cannabis cash when determining income, which limits how much financial institutions can lend.  

One opportunity is lending to employees working in the cannabis industry because they’re paid in cash. That’s not always accepted in traditional underwriting, Garry says. 

“We’re advocates for the industry,” Forbert says. “We provide services they can’t get anywhere else. It’s easy to poke fun of them as hippies, but the industry is built by strong business people who know what they’re doing, have a good plan in place, and know how to operate throughout the industry. 

“By helping to legitimize the industry, we make the state money and drive out some of the black market,” he adds. “We protect New Mexicans because we ensure the cash is handled safely.”