Not serving pot shops? Legal weed still impacts your credit union

LANSING, Mich.—Marijuana-legalization advocates have driven much of the national push toward wider acceptance of the drug. If their efforts continue it could become even easier in the coming years for financial institutions to serve that industry.

That was the word from Shelly Edgerton, senior counsel at Dykema and a former regulator who created the bureau that houses Michigan’s legal marijuana licensure program. Edgerton spoke Wednesday as part of a panel on pot banking issues at the Michigan Credit Union League’s annual Governmental Affairs Conference.

Michigan was one of several states where voters legalized the drug in the 2018 midterm elections. Credit unions have also been active in many other states where the drug is already legal, including in West Virginia, working with lawmakers to fix legislation in order to allow financial institutions to serve the legal weed industry without fear of prosecution. And a variety of measures are under way at the federal level to reduce restrictions for institutions looking to serve the industry.

Edgerton noted that legalization has become a hot topic for many Democratic presidential contenders, though she said legalization isn’t likely to happen until at least after the next inauguration day.

“I think it’ll be a big presidential topic, so maybe in 2021 we might see more momentum – it just depends on how much money the [legal marijuana] industry wants to spend in pushing Congress to deliver,” she added.

Well over half the states now allow either medical or recreational adult use, though the dichotomy between state and federal laws has created confusion for credit unions and other financial institutions considering entering the marijuana banking space.

Lance Boldrey, who leads Dykema’s cannabis law practice, offered a word of warning that applies to credit unions in Michigan and elsewhere.

“You are banking marijuana businesses whether you want to or not, whether you know it or not,” he said, noting that CUs may have members who work as caregivers and receive income from those employed in the legal weed industry, or they may serve landlords with marijuana businesses and tenants or even attorneys that earn money working with pot shops. That was the case with Dykema, he added, explaining that the firm actually had to open a separate account with its financial institution in order to continue serving its cannabis clients.

The point, he added, is that while only one bank and one credit union in Michigan are currently openly serving the industry, its growth and widespread legalization will have a significant impact on all credit unions even if they don’t deliberately enter that space.

Recreational marijuana isn’t available for sale yet in Michigan, but the drug has been medically available for more than a decade. Boldrey noted that the state is home to more than 179 licensed facilities – including growers, testing labs and secure transporters – and more than 400 new licenses are pending appeal.

Unlike in states where lawmakers wrote the legislation that legalized the drug, the change in Michigan was largely pushed by activists. As the adult recreational use market gets up and running, he said, that’s likely to create additional issues from a banking standpoint.

Michigan and California hold the nation’s two largest patient populations for medical use, Edgerton and Boldrey said, and both states are already relatively well-versed in how to deal with the various issues surrounding legalization. That means the process could be much faster in other states that legalize because lawmakers and others in the industry learn from best practices.

“I think you’ll see an even quicker evolution when it comes to adult use” than with medical, said Edgerton.

But that process will be hindered if lawmakers don’t work quickly alongside those pushing for legalization, she said.

“This industry is clamoring for guidance – rules and policies not unlike the FinCEN guidance and the Cole memo from years back,” Edgerton said. “Everybody, if they want to be in this space, wants to be in compliance, and that would be most beneficial to the financial institutions to be able to have that kind of activity.”

The SAFE Banking Act and STATES Act, she added are a “major step forward,” but they still have a long way to go before they become law.