Fourth Corner Credit Union has lost its court battle to offer banking services to the marijuana industry, but its organizers are not throwing in the towel.
In a ruling Tuesday, U.S. District Judge R. Brooke Jackson declined to override a decision by the Federal Reserve Bank of Kansas City that denied the Colorado credit union access to the U.S. payment system. The judge's opinion reinforced the widespread perception that banks and credit unions would be wise to steer clear of the burgeoning cannabis industry — at least until Congress steps in and offers them stronger protections.
Deirdra O'Gorman, the credit union's chief executive, declined to disclose her group's next move, but said she hopes the decision will spark a dialogue "that has needed to take place for some time."
"This industry needs clarification on the banking issue…the Fourth Corner Credit Union will continue to advocate for federal clarity," she said in an email.
Other observers in both the banking industry and the pot business saw the judge's ruling as the likely death knell of hopes that the courts will intervene to resolve the long-running dispute pitting the federal ban on marijuana against legalization measures in 23 states and the District of Columbia.
Don Childears, president of the Colorado Bankers Association, said the judge's ruling "signals to the marijuana industry what we've maintained for two and a half years, which is only Congress can address this situation."
"It again raises the profile and underscores the fact that it's critical for Congress to change the law, in order for this problem to be fixed," added Robert Rowe, associate chief counsel at the American Bankers Association.
Perhaps the most likely way for Congress to resolve the conflict would involve granting a safe harbor to banks that do business with legitimate marijuana enterprises. Legislation to do that has been introduced in both the House and Senate but failed to advance out of committees, and the situation is not expected to change before the November elections.
In the longer run, marijuana advocates are more confident that federal law will be changed, since the number of states where the drug is legal continues to increase, and members of Congress from those states face pressure to resolve the conflict.
The credit union, which was organized in 2014 to serve the marijuana industry, has yet to open for business.
It could choose to appeal the judge's decision to the 10th Circuit Court of Appeals. But that decision would add to a mounting legal bill in a court battle that many observers believe the credit union has little chance to win.
O'Gorman said Wednesday that the credit union is currently deciding its next steps. A spokesman for the Kansas City Fed declined to comment on the ruling.
The Fourth Corner saga began when the Kansas City Fed rejected the state-chartered depository's application to open a so-called master account. Those applications are normally approved as a matter of course within a few days, and are necessary for the electronic transfer of funds.
Fourth Corner sued the regional Fed bank, asking Judge Jackson to issue an injunction that would result in the approval of its application. At a Dec. 28 hearing in Denver, the judge urged Fourth Corner and the Kansas City Fed to reach a settlement.
But that plea went unheeded, and in Tuesday's ruling the judge denied Fourth Corner's request for an injunction.
The judge did express sympathy with the plight of the marijuana industry in Colorado and elsewhere, where businesses often operate only in cash. But he that said that he cannot 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," Jackson wrote.
Jackson was also critical of federal guidance on the marijuana banking issue that was published by the Financial Crimes Enforcement Network in February 2014.
In the guidance, Fincen acknowledged that financial transactions involving marijuana business generally involve funds from illegal activity. In light of that fact, Jackson argued that Fincen acted "hypocritically" when it simplified the requirements for banks and credit unions to report suspicious activity related to state-licensed marijuana businesses.
The number of banks and credit unions doing business with marijuana enterprises has risen since Fincen issued its guidance, but remains low. As of the end of July, there were 266 depository institutions nationwide that had open accounts with marijuana businesses, according to a document released last year.
Steven Kemmerling, the CEO of MRB Monitor, a firm that helps financial institutions manage the risks associated with the pot industry, said the ruling may have a chilling effect on the willingness of banks and credit unions to open and maintain accounts for marijuana businesses.
"If anything, this ruling may actually make the current marijuana banking market — as ephemeral as it is — even worse since a federal authority very publicly said allowing it 'would facilitate criminal activity,' " Kemmerling said in an email. "Banks that have been considering entering the marijuana space may also slow down or completely stop those efforts."
Childears said that the ruling would continue to discourage banks from accepting business from pot growers and distributors.
"I think what it does is keep the status quo, in that it validates for banks that it is still a federally illegal activity, and there are significant risks associated with that," Childears said.