2 credit unions, 2 different paths to pot banking
NEW ORLEANS – The grisly murder of a beloved member solidified North Bay Credit Union’s commitment to serving marijuana companies.
Legal pot companies often struggle with finding a financial institution to serve them since the drug remains illegal at the federal level, though numerous states have legalized marijuana to some degree. Because of that, marijuana companies and their employees often deal with enormous amounts of cash, causing concerns over public safety.
The murder of Luis Torres highlights this fear, Chris Call, CEO of the $57 million-asset institution, said during an interview at the annual conference for the National Association of Federally-Insured Credit Unions. Call spoke on a panel on Wednesday about the risks and rewards of serving legal marijuana companies.
Torres was shot to death during a home invasion in February 2018. The perpetrators had targeted his Santa Rosa, Calif., home in search of cash and marijuana, according to local news.
However, Torres’s family said he was not involved in growing marijuana, though supplies from a past legal operation was still on the property, according to local news. The drug is legal for recreational use in California.
The fatal incident was “sort of a galvanizing” moment for North Bay, which has been serving marijuana companies for about 18 months now, Call said. Torres was the type of member who would bring in lunch for North Bay’s employees and treats at Christmas, he added.
“He was a really good member,” Call said.
Addressing this public safety concern remains North Bay’s motivation for serving the industry, Call said during the panel discussion. He estimated that his credit union has helped move roughly $200 million of cash from the streets and into a financial institution.
“We had people transporting huge amounts of cash in their cars to pay their bills,” Call said during the panel. “That solidified our commitment to want to provide a solution to the public.”
The business line also has been a bit of a boon for its reputation in the community. North Bay didn’t advertise its involvement in serving pot businesses at first because of concerns over reputational risks, Call said. It eventually put out a press release in January outlining its desire to address public safety concerns.
“What we found is that if anything our reputation has been enhanced,” Call said. “We aren’t taking a moral stance on the issue. We are taking a public safety stance and that’s something everyone wants.”
Allegacy goes its own way
Allegacy Federal Credit Union is on a bit of a different track by providing banking services to hemp companies in North Carolina. The 2018 Farm Bill took hemp off the controlled substances list and legalized its production. Now mainstream retailers such as Target and Bed Bath & Beyond sell hemp products.
And yet these companies still have trouble finding banking services, Timothy Moore, general counsel at Allegacy Federal Credit Union in Winston-Salem, N.C., said during the panel. The $1.6 billion-asset Allegacy got started in serving hemp businesses after getting calls asking if it was banking the industry. About a year ago, Allegacy began researching and analyzing the business before eventually taking the plunge, Moore said.
Still, credit unions need to tread carefully before they start serving marijuana businesses given the legal gray area of the industry, the panel said. As for hemp, the 2018 Farm Bill doesn’t preempt state law on the matter, Moore said.
“There’s not a blueprint for ‘I want to serve pot or I want to serve hemp businesses,’ ” Moore said. “I live in constant fear of what I don’t know. But we reviewed it and we felt comfortable with it.”
The Santa Rosa, Calif.-based North Bay built an entire compliance team to work on its marijuana banking business, doubling the number of its employees, Call said during the panel. Its number of full-time employees spiked from 10 in the first quarter of 2018 to 20 a year later, according to call report data from the National Credit Union Administration. Its noninterest expenses also almost doubled, to $865,000, in the first quarter from a year earlier, according to call report data.
The business also requires additional audits, technology, consultants and advisers. Each cannabis business is required to submit extensive information so North Bay can complete due diligence. This includes background checks and a site visit to the operations when the account is opened and then ongoing monitoring and semiannual site visits once the account is established. To cover those costs, North Bay charges its marijuana customers a “hefty monthly fee” to ensure the business line remains revenue neutral, Call said.
Despite all of this monitoring, the credit union has had to shut down accounts because management “didn’t like what they were doing,” Call said.
“A level of trust has to be there,” he added during the panel.
Andre Herrera, executive vice president of banking compliance at Hypur, a payments and banking technology firm, provides a list of a dozen steps credit unions should take before entering the market, including reviewing federal and state statutes, completing a business plan, training staff and checking insurance coverage.
For institutions that are adamant they don’t want to serve the marijuana industry, executives should include a question at account opening that asks whether the member derives any money from cannabis firms.
But that’s likely a losing fight.
“You have marijuana money in your institution whether you know it or not,” Herrera said.