Despite DOJ Actions, Lots of Opportunity for CUs in Pot Banking

CU Journal recaps a panel about marijuana banking opportunities for credit unions that took place at the 2018 National Association of Credit Union Service Organizations (NACUSO) annual conference. John Vardaman, Hypur EVP and General Counsel, was on the panel and shared his thoughts, particularly that the impact of the rescission of the Cole Memo was less than anticipated, with little changing for the industry.

Despite a shaky start to 2018 – including Attorney General Jeff Sessions’ move to rescind Obama-era protections for state-level cannabis – several experts in marijuana banking insist that there are opportunities available for credit unions that want to get involved in a potentially lucrative market.

That was the message from a panel discussion during a breakout session at the National Association of Credit Union Supervisors’ annual NACUSO Network Conference Monday.

Maps Credit Union, a $690 million institution based in Salem, Ore., has served cannabis industry since 2014, shortly after the Beaver State legalized adult recreational use of marijuana. Rachel Pross, the CU’s chief risk officer, came on board in 2016.

“The board made decision to promote community safety first, and second to serve the underserved,” she said. “I can’t think of a better definition of ‘underserved’ than the legal cannabis industry.”

Pross said if other CUs wish to get into cannabis, the first commitment they need to make is to robust compliance – as she said Maps did.

“Have a limit on the number of accounts you take on and have a written exit strategy,” she advised.

When the Cole Memo was rescinded in January, Maps CU had $30 million in cannabis money on deposit. Management had to order $30 million in cash and be ready to drop it within 24 hours, Pross recalled.

“Not everyone is going to be super stoked on cannabis making,” she warned. “One step we took is the program needed to pay for itself, not take any money out of the collective pool.”

While there are pitfalls to banking cannabis businesses, Pross said potential risk at Maps CU is mitigated “because our employees are much better trained on BSA than the average credit union.”

Anti-money-laundering software is an “absolute must” for CUs wading in to the business, Pross counseled. She also suggested CUs use a compliance management tool to track everything from the application stage to accounts that are up and running.

“We do a lot of outreach and education because the biggest reputational risk is a credit union getting into this business and not doing it well,” she said. “You cannot do this halfway. Maps does not give away its policies and procedures, but we will help a credit union write its policies and procedures. We are helping law enforcement every quarter by giving information by BSA reports. If you are going to do this, adhere to the policies and procedures you write. If clients do not follow, close their accounts.”

‘Nothing has changed’
John Vardaman, executive vice president and general counsel for Scottsdale, Ariz.-based Hypur, said the rescission of the Cole Memo was expected from the moment President Donald Trump appointed Sessions as attorney general.

“But as the dust settled, it was interesting to note the impact was less than anticipated,” he said. “FinCEN guidance remains in effect, which is pretty significant. Marijuana legalization is a reality and FinCEN has no compelling reason to rescind its guidance. Turns out, nothing has changed, which has provided a level of assurance for the industry.”

Other developments have strengthened the feeling that this industry is not going away, and banks and credit unions “can and should get involved,” Vardaman continued. He said the Department of Justice has said it will not go after states that have legal medical marijuana programs. Perhaps more significantly, Congress recently introduced safe harbor legislation for the industry.

John Boehner, former speaker of the House of Representatives and a public face of Republican opposition to legalized marijuana, recently joined the board of one of largest cannabis companies. According to Vardaman, it is “symbolically significant” to have Boehner lend his public support. Another development in the last week is Sen. Cory Gardner from Colorado got President Trump to publicly give support of legal marijuana in Colorado. Vardaman said that development is important, especially in conjunction with speaker of the House Paul Ryan (R-Wis.) declaring his retirement, which means the Democrats might get back control of the House.

“Republicans have been hostile to marijuana legislation,” Vardaman said. “We have come a long way in the last four months. Developments portend good things for the marijuana industry.”

Fourth Corner turns the corner
Deirdra O’Gorman, CEO of Denver-based Fourth Corner CU, noted her credit union recently settled with Federal Reserve Bank of Kansas City, a move that will allow the CU to move toward opening a master account.

“We are excited to be able to move forward,” she said. “Our next step is to obtain deposit insurance.”

O’Gorman said one limiting factor for the legal marijuana industry is many CUs and banks do not know who to trust, and they do not know who to ask when they have questions.

“Cannabis companies are growing and they are growing fast,” she said. “Our credit union was designed to open up the doors for conversations. We are seeing regulators realize this needs to be a national conversation.”

Maps CU’s Pross said as the cannabis industry becomes more mainstream, compliance will not change drastically.

“The scrutiny will go down, but not the compliance,” she predicted. “It is a huge industry, but it is also a very small world. You are taking on risk by taking these deposits, so price for risk. If you are hiring more people to handle the man-hours, break that down.”

This article originally appeared on