DENVER — The need for more financial institutions to step up and serve the marijuana industry could not be more clear to Michael Elliott.
The executive director of the Marijuana Industry Group knows the dangers pot businesses face from not having access to mainstream banking or payments services, and instead are forced to handle a lot of cash.
Elliott said the situation, which exists across most of the U.S., is "putting people's lives on the line."
"Just a few weeks ago someone was killed at a Los Angeles marijuana dispensary during a botched robbery," Elliott told Credit Union Journal. "Bad things happen."
One year ago, Elliott explained, a marijuana business owner was kidnapped by two former employees and driven out to a desert where the thieves suspected the owner was burying large amounts of money.
"On the way they tortured him, literally cutting off pieces of his body," said Elliott. Having to handle a lot of cash is a "terrible safety issue."
Elliott predicts that in the coming year more credit unions and banks will openly work with the marijuana industry, as public and political opinion of the legal cannabis business improves, and as more states legalize marijuana for medical and recreational use.
Two credit unions in Washington, the second state to legalize marijuana for recreational use, are currently working with pot businesses.
And while an alternative to banks and CUs — cannabis credit cooperatives — were recently approved in Colorado to serve licensed marijuana dispensaries in the state, Elliott does not see these organizations gaining traction.
The co-ops are uninsured financial services cooperatives regulated by Colorado's Division of Financial Services and are not credit unions. Colorado's state regulator has yet to receive an application for a cannabis co-op.
"Our trade association lobbied heavily in favor of creating these co-ops, but we are not very confident they are going to work," said Elliott, who is aware of a few efforts to start a cannabis co-op. He predicts that Colorado will see at least a few attempts to establish a co-op within the next year.
Solution Is Needed Now
But Kristi Kelly, principal at Good Meds, a group of medical marijuana businesses in Denver, emphasized that her organization needs financial services solutions now.
Through the end of May, there had been 53 burglaries and one robbery at Denver's more than 700 licensed marijuana stores and cultivation facilities — putting the city on pace for about 130 burglaries and robberies by year's end, the Denver Post reported.
She said her company has gone to a great deal of time and expense — including adding a significant number of staff — to create a process within her company to handle cash and to also increase security.
"We don't keep large amounts of cash on hand," said Kelly. "We try to minimize risk that way. People with bad intentions are going to be attracted to what we offer because we have the perception of high levels of cash and have a high-value product."
Kelly said that managing cash within her business used to take only a small amount of one staffer's time — now multiple full-time employees handle the task. "We have created a mini-bank' within our company to perform much of the functions of an external bank," she said.
Those within the marijuana industry acknowledge that some banks and credit unions across the country will work with marijuana businesses — knowingly and unknowingly. But the real problem, explained Kelly, is that the relationships don't last.
"We have lost so many bank and credit union accounts that it became burdensome to keep switching," she said. "Inevitably the financial institution's compliance officer takes issue with something, such as the frequency and volume of cash we deposit, and we are asked to leave."
The $360 million Salal CU in Seattle recently began serving the marijuana industry and has had three pot businesses join the credit union with six applications being finalized. CEO Russell Rosendal said one of the reasons the credit union made the move was to help keep crime down in the communities it serves.
"We hope to improve public safety by getting some of this cash off the streets," said Rosendal.
Salal is selective in the types of marijuana businesses it will work with, choosing only I-502 licensed companies that are focused on the medical industry. It is not working with marijuana retailers at this time.
"We want to make sure these are solid businesses, that they have good business plans and have some medical background," said Rosendal. "We brought this proposal to our board a number of years ago and they have been very supportive. We are starting slowly, making sure we have all the processes in place to monitor these businesses. They won't be a huge part of our credit union going forward, but we hope we can set the tone for how other financial institutions might work with the marijuana industry."
In Spokane Valley, Wash., Numerica CU in May became the first financial institution in the state of Washington to accept business from recreational marijuana processors and producers.
But the $1.4 billion CU will only work with Spokane-area marijuana businesses. "We decided to do this because the credit union is concerned about the crime involved with all-cash businesses," said Kelli Hawkins, Numerica communications manager, in a previous report. "We feel it is in the best interests of our members and our communities that legitimate businesses are able to safely and securely manage their finances at a financial institution."
Hawkins recently told Credit Union Journal that the CU has opened one account for a marijuana business.
Despite Colorado and Washington legalizing marijuana for recreational use and more than 20 states approving it for medical use, most credit unions and banks have shied away from accepting deposits from marijuana businesses because under federal law they could be criminally liable for the actions of the businesses' customers, and drug enforcement agencies can seize dispensaries' deposits.
Elliott said that remains a major obstacle to marijuana businesses gaining access to the mainstream financial system. Banks, credit unions and the co-ops that work with marijuana businesses will be violating federal law, he reminded.
"The cannabis credit co-ops will be violating federal law, as well, and the assumption is that the Federal Reserve won't allow the cooperatives access to the ACH system if they are violating federal law," Elliott said.
While a big hurdle, that is only one obstacle the cannabis cooperatives face, according to Chris Myklebust, Colorado commissioner of financial services.
"First, organizers must form the co-op. They must file articles of incorporation and assemble a board of directors — everything involved with putting a business together," explained Myklebust. "Then they must receive written approval from the Federal Reserve Board of Governors granting them approval for access to the fed system. Organizers must then submit an application to me. My office performs an investigation that includes a criminal background check and a close look at the financial qualifications of the organizers."
In addition to the commissioner's investigation, upon receiving the application Myklebust and the executive director of the Colorado Department of Regulatory Agencies then organize a stakeholder group to identify any conflicts between Colorado laws that govern the co-ops and all other state laws.
"Any identified conflicts will require the Colorado General Assembly to resolve those issues," said Myklebust. "So even after going to great lengths to organize a co-op and gain access to the Federal Reserve System, an organizer is still subject to a lengthy approval process that includes the probability that the Colorado General Assembly will have to modify further the statutes governing the co-op."
Kelly said her company would not be opposed to working with a cannabis co-op, but prefers dealing with a bank or credit union.
"The concept of the cannabis co-ops is new and innovative, but there are specific securities that come with working with a bank or credit union," said Kelly. "We are credible businesses, we follow the rules, we are taxed and regulated by the state — we just would like to have the same options as other state regulated businesses."
Elliott concurs.
"The marijuana industry will be interested in these cannabis co-ops, but we want normal banking relationships. We don't want something special for us."
Help Is On The Way
The pot industry is getting help from Washington. In July, the House of Representatives approved an amendment sponsored by Rep. Denny Heck (D-Wash.) that would block the Securities and Exchange Commission and Treasury Department from using federal funds to penalize credit unions and banks for providing financial services to state-licensed pot businesses.
"The bill still needs to be passed by the Senate and signed by the president to become law," said Elliott. "The way I read it, it's not making marijuana industry banking relationships legal on a federal level, but there would be no enforcement efforts against FIs from the SEC and Treasury."
Elliott says the bill itself is a sign that the marijuana industry is moving into the financial mainstream. "We have never had a pro marijuana reform bill approved in the House. This is historic."
