How one credit union is bucking the trend with legal weed

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In a state known for risk-averse credit unions, one institution is bucking the trend in a bid to serve the fledgling medical cannabis industry.

Charleston, W.Va.-based Element Federal Credit Union is one of five organizations in the state to respond to a request for proposals from lawmakers after the state’s bank refused to provide services to the program due to conflicts with federal law. But that move is also at odds with the state’s credit union league, and is reflective of a quandary many CUs find themselves in: whether to play it safe and stay out of pot banking or deal with the risk that comes from serving the growing industry surrounding a product still illegal at the federal level.

Medical marijuana was supposed to take effect July 1 after Gov. Jim Justice signed legislation into law earlier this year, but the state has yet to settle on a financial institution to bank the industry. Element FCU and others have applied accept application fees and license on behalf of the state. Element submitted its bid on June 5, but Linda Bodie, president and CEO of the $35 million-asset institution, said credit union officials were told a final decision would not be made for a few weeks.

“I think we should know something soon,” she said.

Part of the delay comes from the fact that some of the groups submitting applications aren’t federally insured financial institutions. As things currently stand, explained Bodie, the state’s bank won’t currently accept funds from patients for medical cannabis cards or for licenses from growers, dispensaries and others.

“The inability to bank the industry prompted the state legislature to craft special language for this program to allow non-banks to bid on the services,” said Bodie.
While Element hopes to bank the legal weed industry, that sentiment isn’t shared by the rest of the state’s credit unions.

When the lawmakers in the Mountain State were crafting the bill, the West Virginia Credit Union League took what it termed a “neutral” stance. Rich Schaffer, senior vice president, told Credit Union Journal the league’s stance remains the same.

“There are issues on the federal level with cannabis banking, and the nature of credit unions in West Virginia is to focus on consumer lending, auto lending and ways to increase their loan-to-share ratios,” Schaffer assessed. “Some credit unions received an email from the state treasurer’s office asking if they wanted to bid to provide services. We did not discourage anyone, but we did let them know cannabis banking might be in violation of federal law. Most credit unions in West Virginia are federally chartered, and most are risk-averse.

Element FCU is just one of four credit union in the state that is not a member of the league, but Schaffer said the credit union’s status is not related to the cannabis banking issue.

“Element disaffiliated five or six years ago,” he recalled. “They had been a longtime member, but decided not to renew. It was not an acrimonious situation.”

‘No one is just jumping in’

As of March 31, some 633 FIs were actively banking marijuana-related businesses in the U.S.: 493 banks and 140 credit unions, according to data from the Financial Crimes Enforcement Network.

Katrina Skinner, president of Safe Harbor Banking Services, a credit union service organization wholly-owned by Partner Colorado Credit Union, Arvada, Colo., suggested those figures could be higher if more credit unions seize the opportunity.

“No one is just jumping in,” Skinner reported. “It takes a lot of education and careful research. Financial institutions ask themselves, first, do they have the capacity to serve the industry, and second, is it a good fit for their institution.”

Skinner said that while most state leagues don’t actively discourage their member credit unions from banking the legal cannabis industry, all leagues do take a “conservative approach” because the drug is still illegal at the federal level.

“They want to assist, but they don’t know how to overcome the illegality,” she noted. “They remind credit unions to be prudent, but the leagues are becoming more supportive. There are some leagues out there that would prefer everyone who is banking cannabis to come out in a united front – that being a conservative approach. They fear if some credit unions move too quickly it could affect all of their credit unions.”

Skinner said some leagues, including Michigan and Illinois – which last month became the 11th state to legalize recreational use of the drug – have shown interest in educating member institutions and are beginning to develop tools and programs to help CUs that elect to serve the industry.

The tide is turning, she said, even if it’s turning slowly.

“The environment seems to be more favorable toward banking cannabis, even compared to last year,” observed Skinner. If the SAFE Banking Act would pass, that would make a huge difference in taking away fear of prosecution under federal money laundering statutes.”

Though many in the industry are staying away from pot banking for now, Bodie said her credit union was willing to move forward on the issue thanks to a “vast network of support” through its CUSO relationships.

“Each credit union has a different mission, vision and risk tolerance, and I cannot speak on their behalf,” she said. “However, I imagine that most credit unions are risk averse and don’t feel comfortable pursuing new ventures until others have paved the way.”

Bodie said Element has already spent a significant amount of time preparing for this opportunity, including studying the pot banking landscape and talking to other institutions serving it, as well as looking into potential vendor partners.

“We have been researching for two years since the law passed,” she said. “We have done tons
of research to see if this works for us and our community.”
If the West Virginia treasurer’s office awards Element the job, the CU will establish a banking relationship with the state and then begin the permit and licensing process. While all of that will mean an additional compliance burden, among other challenges, Bodie said the pros – including opportunity to help those in the community who need legal medical marihuana and the chance to ensure the state program can be successful – far outweigh the cons.

“We want the program to be successful,” she said. “We have many people who can benefit from medical cannabis. We want to provide safety to persons and businesses engaged in the industry. Without banking services, transactions are handled in cash, which could result in crime,” she noted.

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Marijuana banking Marijuana industry Growth strategies Risk Risk appetite FinCEN West Virginia