The 2016 election could bring a tipping point for the legal marijuana industry, as well as the struggles of financial institutions – including credit unions – that hope to grow their business by providing banking services to so-called "cannabusinesses."
Whether you call it marijuana, cannabis, pot, weed, ganja or any other name, the drug and its use
– by adults seeking a high or by patients seeking relief from a wide variety of ailments ranging from anxiety to chronic pain to seizures – is becoming increasingly accepted…and legal. Currently, medical marijuana has been legalized by 25 states, while adult recreational use of marijuana is allowed in four states plus the District of Columbia, despite remaining an illegal drug on the federal level.
Eight states have legalization initiatives on their General Election ballots this year. Voters in California, Nevada, Maine, Massachusetts and Arizona will weigh in on adult recreational use, while those in Florida, Missouri and Arkansas will be asked to approve medical marijuana.
All of which creates a burning question for credit unions: Should they offer banking services to cannabis-related businesses?
Even as legalization has become more widespread over the last decade, dispensaries, grow houses and a variety of ancillary companies involved in different aspects of the industry have had a great deal of trouble obtaining and/or keeping business banking accounts. Even companies that do nothing more than offer consulting services to cannabusinesses – they do not grow, transport or otherwise handle the actual product – report having to change financial institutions multiple times due to the stigma attached to cannabis.
Growth Potential: $630 Million in Nevada By 2020
Observers say that despite past struggles, the sheer amount of opportunity available from legalized marijuana businesses will draw more FIs to the enormous income potential of marijuana.
On the medical side, proponents are touting the use of cannabis-infused topical oils as pain relievers they say are safer than opioids – which have come under fire as increasing numbers of Americans are becoming addicted to Percocet, Vicodin, OxyContin and other legally prescribed painkillers.
On the recreational side, the sky is the limit, moneywise. Since legalization of adult use was passed by their respective state voters, Colorado and Washington have seen explosive sales growth – and unprecedented amounts of cash on the streets as companies struggle to gain banking relationships.
In July, Arcview Market Research, an Oakland, Calif.-based publisher of cannabis market research, in partnership with New Frontier, supplier of cannabis big data and analytics, released its 2016 Nevada Legal Cannabis Market State Profile, which estimates the potential growth of the adult-use market if Nevada voters choose, as expected, to legalize recreational cannabis in November. Given Nevada's already vast built-in market for tourists, over the next four years, Arcview Market Research's official market projection is annual legal cannabis sales in the Silver State will grow at a compound annual growth rate of 51% from $121.6 million in 2016 to an estimated $630 million by 2020.
Troy Dayton, CEO of The Arcview Group, which has been in business since 2010, told Credit Union Journal, "If people think there is a problem with cash now, with the four states that have legalized [Alaska, Colorado, Oregon and Washington], it is going to be much worse after the election. There will be pressure on banks and credit unions."
Early polls show strong support for legalization of adult recreational use in California and Nevada, and medical marijuana in Florida. Dayton noted a majority of Florida voters approved a medical marijuana initiative in 2014, but it needed 60% to pass.
"There is no possible way – if California, Nevada, Massachusetts and Florida pass provisions – that banking stays the way it is," Dayton predicted. "If anything, regulators want a banking solution so they can properly tax sales. There have been some changes, but most of the big banks are saying 'no.' There's almost no one who does not think cannabusinesses should not have access to the banking system. Cannabis itself is not particularly dangerous, but big large stacks of cash are."
Fourth Corner Still Seeking Redress
In Denver, Fourth Corner Credit Union was organized in 2014 to provide banking services to legalized cannabis and hemp industries. It was granted a state credit union charter, but hit a snag when the Federal Reserve Bank of Kansas City denied the CU's application to open a master account. Fourth Corner sued the bank, but was denied its request for an injunction by U.S. District Judge R. Brooke Jackson, who said he could not encourage financial institutions to violate federal law.
"A federal court cannot look the other way. I regard the situation as untenable and hope that it will soon be addressed and resolved by Congress," he wrote in his ruling in early January.
Deirdra O'Gorman, CEO of Fourth Corner CU, told Credit Union Journal her CU also has legal action pending against the National Credit Union Administration.
"Our NCUA case is moving forward in the courts," she said. "We received notice in the beginning of July. The court ruled the lawsuit can proceed."
While she and the rest of the Fourth Corner team wait in limbo, O'Gorman said they are helping other FIs that are getting into highly regulated markets, including cannabis.
"I wish I had a crystal ball to say what would prompt legislators and regulators to act," O'Gorman said when asked if the November election will serve as a tipping point. "I don't know what will be the impetus to change, but we want to advance the conversation and help the industry to grow."
Sundie Seefried, CEO of Partner Colorado CU in Arvada, Colo., has said that there's simply too much money changing hands within the legal marijuana industry not to be providing banking services to cannabusinesses. Not everyone may agree on legalization, she noted, but everyone agrees about public safety issues when so much money is out on the streets. Seefried has even crafted a program known as "Safe Harbor" in order to better assist credit unions that want to get into the legal pot banking space.
Arcview Group's Dayton said there is an issue relating to legalization that people are not talking about, but should be: "Having a banking program makes it easier for states to collect taxes, and it would lower the cost of doing business. Right now if there are only one or two options, then fees are really high, which hurts investments and job growth," he said.
