In search of new streams of non-interest income, some U.S. credit unions are exploring the marijuana industry. Others, however, are still hesitant about banking the space because of stigmas and confusing federal guidance.
First-quarter 2018 data from the Financial Crimes Enforcement Network shows that approximately 100 credit unions have entered the cannabis-banking space. While that number has increased in the last few years, those credit unions represent less than 2% of the 5,607 credit unions operating in the U.S. at the end of the second quarter.
More credit unions may look at the industry because a growing number of states are legalizing the drug, and banking the sector is extremely lucrative, said Tyler Beuerlein, vice president of business development for Scottsdale, Ariz.-based Hypur Inc. Hypur is a technology provider that helps companies, including credit unions, operate in highly regulated industries including cannabis.
To date, 32 states plus the District of Columbia have legalized some form of cannabis usage. Another 14 states allow cannabis oil, so only four states disallow marijuana completely, according to the National Association of State Credit Union Supervisors.
In an interview, Beuerlein said entering the marijuana banking space makes sense for credit unions because of their community focus. If credit unions do not get involved, he said, some believe there could be massive amounts of cash floating in the community, which can attract criminals.
Many credit unions, however, still think they cannot serve the industry, Beuerlein said. They believe operating in close proximity to the marijuana industry carries a certain stigma, he said. The opposite is often true, though, according to Beuerlein. Communities are thankful to get the money off the streets, and so the institution's image is actually enhanced.
"So what they think will be a negative actually turns out to be a positive," he said.
Beuerlein said many institutions are beginning to realize that even if they do not directly bank the marijuana industry, they may still be exposed indirectly.
"If there is any kind of ancillary person touching those [marijuana] operators ... [credit unions] are probably banking some form of it whether they realize it or not," he said.
Per FinCEN's guidance, anyone deriving even a dollar of income from the cannabis industry is technically a marijuana-related entity. This means that an institution banking such an entity has an increased compliance burden and must file a Suspicious Activity Report on that account every 90 days.
The burden is on the institution to identify such accounts, Beuerlein said.
Partner Colorado CU President and CEO Sundie Seefried said in an interview that federal guidance is not as murky as people think. The Bank Secrecy Act has been around for many years and is an impetus for how the credit union operates, Seefried said. The FinCEN guidance of 2014 provides additional requirements to BSA/AML that help keep the institution in compliance with federal requirements.
The Arvada, Colo.-based credit union has 210 licensed marijuana-related clients with about 400 accounts that provide more than $100 million per month in cash flow, Seefried said.
There is no way around the fact that marijuana remains a Schedule I drug and is illegal under federal law, NASCUS President and CEO Lucy Ito said in an interview. Meanwhile, the state-led movement toward legalization, combined with what many interpret as permissive guidance from FinCEN, has led some banks and credit unions to decide to serve state-licensed marijuana businesses, she said.
NASCUS has told Congress that the current uncertainty related to serving marijuana-related companies — and the increasing conflicts between state and federal law — is unsustainable and unhealthy for the banking system.
"It is urgent that Congress clearly establish the rules of the road for marijuana banking," Ito said.
NASCUS says those considering banking the industry should watch for red flags. These include a marijuana-related business cutting corners with documentation, or the business or its owners making headlines. Even if a credit union decides to stay away from banking those businesses, they need to be sure their hands are clean. Chances are, somewhere down the line they are serving or would be willing to serve a member who has exposure to marijuana money, NASCUS said.