Federal Reserve Bank Grants Conditional Approval for Credit Union Serving Legal Marijuana Business

Chris Gaetano
Published Date:
Feb 6, 2018

The Federal Reserve Bank of Kansas has granted tentative approval for a credit union to serve professionals associated with Colorado's legal marijuana industry, according to the Wall Street Journal.

The legal marijuana industry has been dogged by lack of access to legitimate banking services since its inception. This is because, despite state-level laws, the federal government still considers it an illegal substance. Banks and credit unions are required  by the Financial Crimes Enforcement Network (FinCEN) to know their customers and to file Suspicious Activity Reports (SAR) if there is any indication that they are committing a crime. Since the entire marijuana industry is, technically, a federal crime, this would mean that any financial institution servicing it would need to file so many of these reports that most banks feel it's just too much trouble and so have opted not to offer services to these companies at all. Even if a bank were to do so, the Federal Reserve has refused to grant financial institutions access to its system if they deal with marijuana-related businesses. This severely restricts the bank's ability to move money around. Deposits for these companies, too, cannot be insured by the Federal Deposit Insurance Corporation, which has similarly refused to deal with them. Because of this, the marijuana industry deals primarily in cash, which has its own complications due to storage and security needs. 

The credit union, Fourth Corner, had originally planned to service marijuana dispensaries directly, thus addressing this major industry issue. However in order to secure federal approval, it needed to temper this plan. Instead, the credit union plans to service marijuana-adjacent businesses and professionals like vendors, accountants and landlords. With this in mind, the Journal said advocates are skeptical that this counts as a big win for the industry. Further, even with federal approval, the credit union will still need to find a way to insure its deposits. This will likely need to be a private insurer, as the National Credit Union Administration had previously rejected their application, though like the Federal Reserve's decision, this too is being challenged in court. 

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