USA Colorado, the news is not good for Cannabis companies that are in need of a bank account. In a recent court case, a federal judge ruled that federal bankers cannot be forced to license a credit union that has clients that are part of the cannabis industry. U.S. District Court Judge R. Brooke Jackson said that they would be making reserve banks give free reign to credit unions that have businesses as clients that perform illegal activities.
This legal battle is about whether the Federal Bank of Kansas has to give a master account (which is required for federal institutions) to the Fourth Corner Credit Union. This credit union was made earlier this year and it was just made to have state-regulated cannabis businesses as their clients. Under United States law, Cannabis is still illegal. Therefore, even though Fourth Corner still has legal rights in Colorado, it has gotten nowhere with the federal credit union. Even though the judge has not made a ruling, an executive for the credit shared his frustration when the hearing was over.
Executive Vice President Mark Goldfogel spoke to the L.A. Times and told them that the cannabis industry brings over a billion dollars (in twenty dollar increments) to the state of Colorado. He also said that when someone passes away, then they will be allowed to bank. Does the cannabis industry actually have to wait for new judges to come into office? Mr. Goldberg’s quote is beautiful, but it is not exactly true.
This case did get a lot of publicity from the media. However, there are a lot of cannabis businesses in Oregon, Colorado, and Washington State that currently have accounts with established banks and credit unions in Oregon, Colorado, and Washington state. Instead of them being well-known corporations like Wells Fargo or Bank of America, they are tiny banks that are chartered by states with names people have never heard of: Salal, Maps, Timberland, and Numerica. It is believed that it is the industry well-kept secret, but these companies do not hide the fact that they serve cannabis companies.
During an interview earlier this year, Senior Vice President of Salal Sheryl Kirchmeier said that after having a long meeting with their board of directors, they decided that this would be a good move for their company. She said it was “part of a public safety issue” for their community. Bankers from the Salem-based Maps had concerns as well. They have had medical marijuana dispensaries as clients for more than a year now and they currently do business with state-licensed recreational businesses is also motivated by public safety concerns. Their Vice President Shane Saunders told the Salem Statesman-Journal that it does not seem right for a man to leave their business at night with $25,000 in cash and have to buy money orders due to the fact that they do not have a credit union to bank with.
There has not been any banks or credit unions that have come out in the open about having cannabis accounts. Some accounts have been opened though. If a person talks privately with some of the bigger corporations in the cannabis industry, they will tell them that they have a banker. However, they will not disclose who they are banking with. They do not want to lose their banker by sharing who they are and putting in a bad light in the public eye.
There is not much information to the public about the banking that takes place with cannabis based businesses, just some talk about it. The Federal Crime Enforcement Network that is a branch of the Treasury Department that fights money laundering reports that there are 266 banking institutions across the country that has MRB’s (marijuana related businesses think THC OIL Vape Pens) as clients. Marijuana Business Daily created a survey not too long ago and 400 people responded to it. Forty percent of the respondents are in the cannabis business and have a bank account as well. Banking is still very difficult for marijuana related businesses especially since it is still considered illegal under federal laws. These businesses are finding ways around these laws though.
Just like anything in the cannabis business, it depends on what state you are located in. Some banks in Oregon and Washington publically share that they have marijuana related businesses as clients. Typically, these accounts are merchant accounts and they cost a lot of money and they are cumbersome as well. Along with being cumbersome and costly, in Colorado these business dealings have to be kept under wraps.
-ay to legalize the marijuana businesses. Scott Jarvis, the director of the Department of Financial Institutions, worked over a year to make banking with cannabis businesses legal. His agency now posts specific regulations and documents to assist bankers and businesses wade through the red tape of regulations to bank legally.
Colorado does not have any policies like this. Their officials decided that the better way to go was to have the state encourage the development of marijuana banking co-ops. With this goal in mind, the Colorado Department of Regulatory Agencies shares information about opening credit unions with cannabis-based clients much like in Scottsdale and Phoenix Arizona. That is the reason that Fourth Corner Credit Union ended up in a courtroom. Banking with marijuana based businesses is still illegal right? The answer to this question is yes and no.
What hinders this type of banking is the Banking Secrecy Act (BSA), a law that is forty-five years old that states that money laundering is against the law. FinCEN is the main federal agency that enforces this act. Banks that desire to take money from businesses that selling a substance that is prohibited by federal law, FinCEN has to authorize it. They do give out this approval, but is not easy to obtain.
In February 2014, the Justice Department and FinCEN issued guidance documents at the same time that made a way for banks and credit unions to have marijuana based businesses as clients without going against the Bank Secrecy Act. These documents are only guidance and are not laws. Instead, they give financial institutions some peace of mind that FinCEN won’t penalize them for having cannabis-related clients provided that they follow a strict guidelines.
FinCEN has stated that it will permit banks and credit unions to do business with companies that are marijuana based as long as they report it to them and conduct extraordinary initial and ongoing due diligence on those clients. Credit unions like Salal have to file Quarterly Suspicious Activity reports (SARS) on their cannabis clients with FinCEN. It may not appear to be a good thing, but it actually is. An SAR filed under the category “marijuana limited” means the client has a business that is cannabis based that adheres to federal enforcement policies as outlined in the Justice Department’s 2013 Cole memo. If the credit union finds actions that may go against these guidelines, it’s reported as a “marijuana priority” case. When they stopped doing business with a client, it is documented as a “marijuana termination.”
All of that reporting takes a lot of work which means that the banks and their clients will pay a lot of money for them. The fees can range from $400 to $1000 a month and a client may not like that price. One owner of a cannabis based business says that they will not pay a $1000 for a bank to hold their money for them.
Scott Jarvis, the head banking regulator of Washington state ensures that his states works with FinCEN. When federal bank examiners acted like they were going to put a stop to cannabis bank accounts, he got involved and put a stop to it. They educated the examiners so they can know what is going on in their region. On the other hand, Colorado says that Congress needs to handle it. Their financial regulators have told banks and credit unions that they have to follow FinCEN regulations and Justice Department memos. Outside of this, banks are on their own.
Don Childears, the CEO of the Colorado Bankers Association, states that FinCEN does not give banks the assurance that they require to open cannabis accounts. In a letter to his association members, he said that it truly takes an ‘Act of Congress’ to bring banks to this business. This type of act may eventually have a chance in both the House and Senate this year. Until that happens, banking with cannabis businesses will remain difficult. However, they do not have to be a cash only business. There are accounts out there for people that are willing to pay for them.