Shh! Here’s How Cannabis Companies Are Banking Legally on the Down Low

Published on December 30, 2015 · Last updated July 28, 2020

For cannabis companies in need of bank accounts, the news out of Colorado hasn’t been good. In a court hearing this week, a federal judge balked at the notion of forcing federal bankers to license a credit union catering to the cannabis industry.

“I would be forcing the reserve bank to give a master license to a credit union that serves illegal businesses,” U.S. District Court Judge R. Brooke Jackson said at the hearing.

At stake in the court battle is whether the Federal Reserve Bank of Kansas City must issue a master account, which is required for lending institutions, to Fourth Corner Credit Union, a startup created earlier this year to serve state-regulated cannabis businesses. Cannabis is still illegal under U.S. law, so while Fourth Corner has won Colorado accreditation, it’s hit a wall with the federal reserve bank.

While the judge hasn’t issued a formal ruling, an executive for the credit union vented his frustration after the hearing.

“In 2016, $1.2 billion in cash will be transacted by the cannabis industry in Colorado,” Executive Vice President Mark Goldfogel told the L.A. Times. “That’s all in $20 bills. At some point somebody will die. And then we will be allowed to bank.”

But will the cannabis industry really have to wait for a changing of the guard? Goldfogel’s statement is a beauty of a quote, but it’s not exactly true.

The Fourth Corner case draws a lot of media attention, but dozens of cannabis businesses in Oregon, Colorado and Washington state already have accounts with a established banks and credit unions. These aren’t national brands like Bank of America or Wells Fargo. They’re small, state-chartered institutions with names you’ve probably never heard of: Salal, Maps, Timberland, Numerica.

It’s the industry’s quiet little secret — only it’s not exactly a secret. A few financial institutions are open about their cannabis clientele. Salal Credit Union in Seattle has been serving the cannabis sector since mid-2014.

“After talking about it at great length with our board of directors, we decided that this would be a fit,” Senior Vice President Sheryl Kirchmeier said in an interview this year. “We saw it in part as a public safety issue” for their local community, she said.

Bankers at Salem, Ore.-based Maps Credit Union, which has been doing business with medical dispensaries for more than a year and now works with state-licensed recreational businesses, were also motivated by public safety concerns. “The thought of some guy walking out of his business at night, and going to an environment where there might be lots of people, with $25,000 in cash in his backpack to buy money orders just doesn’t sit right,” Vice President Shane Saunders told the Salem Statesman-Journal.

No Colorado bank or credit union has publicly acknowledged opening cannabis accounts. But a few accounts are open. Talk off-the-record with some of the bigger players in the state’s cannabis industry, and they’ll acknowledge that they’ve managed to obtain banking services — but they almost never give up the name of their banker. Those who have accounts don’t want to lose them by exposing the bank to unwanted attention or criticism.

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Data is limited, but it tends to back up the chatter. The Financial Crimes Enforcement Network (FinCEN), the Treasury Department bureau that fights money laundering, reports that 266 depository institutions nationwide currently maintain accounts with marijuana-related businesses, known in banking jargon as MRBs. In a recent survey of 400 respondents in the cannabis industry, Marijuana Business Daily reported that 40 percent had bank accounts.

Make no mistake: Banking is still an enormous headache for MRBs. And it’s technically illegal, federally speaking. But a lot of people are finding workarounds.

Cannabis Banking Efforts Take Another Blow

How are They Doing It?

As with everything in the cannabis industry, it depends on the state. A handful of Washington and Oregon banks are open about their business with MRBs. But those accounts, usually very basic merchant accounts, are expensive and cumbersome. In Colorado it’s very hush-hush — and it’s still expensive and cumbersome.

Washington pushed ahead of Colorado in the banking realm by being proactive with smaller banks and credit unions. Three years ago the state’s Department of Financial Institutions (DFI), which regulates banks and credit unions, took extraordinary measures to find a path to banking legalization.

DFI director Scott Jarvis spent more than a year working with federal regulators to make legal cannabis banking happen. His agency now posts specific guidelines and documents to help businesses and bankers make their way through the thicket of regulations to bank legally.

Colorado’s counterpart agency has no such guidance. Officials there thought the better way to go would be to have the state encourage the formation of marijuana banking co-ops. To that end, the Colorado Department of Regulatory Agencies posts information about starting cannabis-focused credit unions.

Which, of course, is how Fourth Corner Credit Union ended up in federal court this week.

But wait: Banking MRBs is still federally illegal, right? Yes and no. Here’s how it works.

The big scary law is the Bank Secrecy Act (BSA), a 45-year-old federal statute that outlaws money laundering. FinCEN is the main federal agency enforcing the act. If you’re a bank that wants to accept cash from a business selling a federally illegal substance, you’ve got to get FinCEN’s approval.

FinCEN has given that approval. Sort of. It’s tricky.

In February 2014, the Justice Department and FinCEN issued concurrent guidance documents (you can find them here and here) that created a way for banks and credit unions to bank MRBs without technically running afoul of the Bank Secrecy Act.

But the documents are only guidance; they’re not laws. They don’t legalize money laundering. Rather, they give financial institutions some assurance that FinCEN won’t come after them for handling cannabis-related accounts provided they follow a stringent set of rules.

FinCEN said, essentially, that it will allow banks and credit unions to handle state-legal cannabis cash as long as the banks report it to the agency and conduct extraordinary initial and ongoing due diligence on those clients.

Credit unions like Salal must file quarterly Suspicious Activity Reports (SARs) on their cannabis clients with FinCEN. That sounds bad, but it’s actually good. An SAR filed under the category “marijuana limited” means the client is operating a cannabis-related business that adheres to federal enforcement priorities as outlined in the Justice Department’s 2013 Cole memo. If the credit union discovers activity that may violate those priorities, it’s reported as a “marijuana priority” case. If the credit union closes out an account, it’s reported as a “marijuana termination.”

In a way, the FinCEN guidance turns banks into another set of eyes watching to make sure cannabis businesses follow the Cole memo priorities.

All that vetting and reporting is labor-intensive, which makes these accounts expensive for the banks and their clients. Charges for a basic MRB account can run from $400 to $1,000 per month. So even if a bank or credit union is willing to open an account, a merchant might flinch at the price. Toni Savage Fox, owner of Denver’s 3D Cannabis Center, isn’t working with a bank “and it’s mostly by choice,” she told Leafly. “I won’t pay $1,000 a month for someone to store my money. It’s not worth it for me.”

Washington state is working with the FinCEN guidance, mainly because Scott Jarvis, the state’s head banking regulator, continues to put effort into making it work. When federal bank examiners looked as though they might obstruct cannabis accounts, for example, Jarvis and his agency intervened.

“We had a couple instances early on where an examiner maybe came in from out of the region and was unfamiliar with the issues,” Jarvis told Leafly. “We followed up with them and took care of the problem. And our folks,” he said of his office’s examiners, “are all pretty schooled up.”

Colorado, by contrast, has taken a “Congress must change it” stance. The state’s financial regulators have told banks and credit unions only that they must abide by the FinCEN guidelines and recent Justice Department memos. Beyond that, banks are on their own.

Don Childears, CEO of the Colorado Bankers Association, has lamented that the FinCEN guidance is too weak to offer banks the assurance they need to open cannabis accounts. “We believe it literally takes ‘an Act of Congress’ to attract banks to this business,” he advised in a letter to association members.

Such an act may finally stand a chance in both the House and Senate in 2016. (See various attempts that stalled this past year, here and here.) Until then, banking for cannabis businesses will continue to be a drag. But don’t believe the hype about cash-only being the only option. Accounts exist for those who are willing to find them — and pay.

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Bruce Barcott
Bruce Barcott
Leafly Senior Editor Bruce Barcott oversees news, investigations, and feature projects. He is a Guggenheim Fellow and author of Weed the People: The Future of Legal Marijuana in America.
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