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Michigan Credit Union League

AC&E 2018: Cannabis Banking Recap

Following Friday’s Center Stage! Action were three sessions on cannabis banking.

Cannabis Banking: What’s the Big Deal?

Sundie Seefried, President/CEO of Partner Colorado Credit Union in Denver

During the lunch session, Seefried gave attendees an industry overview. She talked about the national expansion of marijuana as a company, and the growing sophistication, both of business acumen and technological implementation.

Marijuana sales are projected at $68 billion for 2021; its market growth is putting it next to tobacco sales. And the public opinion on legalizing marijuana has risen from 12 percent in 1969 to 61 percent in 2017.

One of Seefried’s key takeaways was that “every dollar is a cartel dollar unless we can prove otherwise. Keep your eyes on owners, business, money.” Additionally, she advises credit union professionals to ask about changes in ownership and leadership on a regular basis … and validate each dollar.

You also need to assess risk appetite among the credit union’s board, management, staff and regulators, she said. But there is also risk assessment to look at among the media and how this may affect the reputation of the credit union.

Seefried told attendees that credit unions thinking of starting to bank with marijuana-related businesses (MRBs) can expect a very large learning curve, “Accept that you don’t know everything you need to know and that you will need to learn along the way.”

Cannabis Banking: Boots on the Ground Perspective

Rachel Pross, Chief Risk Officer of Maps Credit Union

Pross detailed the history of the cannabis banking program at Maps Credit Union, which started its research and risk analysis in 2014.

It’s not a matter of whether we think it should or should not be legalized … it has to do with the fact that the people of Oregon spoke, they voted, and we have an obligation to serve our members.” Banking the underbanked is also part of the credit union’s logic for banking MRBs, “I can’t think of a more underserved population.”

In 2016, Maps took in $60 million in cash, $180 million in 2017. As of Q1, they’ve taken in $60 million. “This is cash that if we didn’t take it in, it would be elsewhere on the streets,” said Pross.

This is not a retail program, this is a compliance program, she said, before saying that the overarching framework of the compliance guidelines is the Bank Secrecy Act. Other relevant frameworks are the FinCEN guidance and the Cole Memo, even though it was rescinded earlier this year.

When starting a program, Pross suggested credit unions hire one employee to every 15 accounts. Once you’re up and running, she suggested hiring a new employee for every new 30-40 accounts.

Documentation is everything, Pross stressed. Adhering to it is even better. Credit unions need board-approved specific policy with limits that address liquidity concerns and concentration risk. Additionally, formal, detailed, comprehensive exit plan with trigger scenarios defined will be necessary. These plans not only need to be put in place, but also should be stress tested regularly, in order to prepare for a time of crisis, which could strike unpredictably.

What to expect? She said you will experience frequent examinations, ongoing examiner scrutiny and issues with significant cash inflow to branches — which has security implications that will need to be addressed with cameras, cash counters and supported training.

Pross closed by telling attendees how Maps positions themselves for success in such an uncertain field. They work hard on their relationships with elected officials, so they can feel safer during these times by knowing lawmakers have their back.

She also stressed the importance of careful media management, as well as their industry relationships — being very selective about the other credit unions, vendors and trade groups they work with, and making sure that they are educating them along the way.

Additionally, Pross advised credit unions to keep the following red flags and account requirements in mind:

Red flags: Suspicious Behavior

  • More revenue than expected
  • More cash than reflected in tax statements
  • Deposits don’t line up with sales
  • Excessive deposits/withdrawals
  • Random third party deposits
  • Comingling of funds into personal accounts
  • Undisclosed parties of interest
  • Missing documentation
  • Background check findings

Opening Accounts: Requirements

  • Questionnaires
  • Two forms of ID for all signers - then full background checks
  • Licensing and verification of good standing
  • Physical inspection
  • BSA 101 training
  • All business documentation
  • Ongoing refreshing of documents, quarterly

Marihuana Businesses: What Credit Unions Need to Know

Elizabeth Khalil and Lance Boldrey, Dykema

Boldrey and Khalil provided an overview of medical and recreational cannabis at both the state and federal level. They emphasized how quickly the legal landscape surrounding marijuana in Michigan is evolving from the unregulated system that exists today, and how this can help financial service providers interested in working with MRBs in the future.

Federal legality remains the main obstacle to banking with state-legal MRBs, said Khalil and Boldrey. Because marijuana remains a Schedule 1 controlled substance at the federal level — the highest level a substance can be categorized as, and the same categorization as heroin — MRBs remain illegal under federal law, regardless of state law.

Changes to marijuana’s Schedule 1 status require action by Congress or the Drug Enforcement Administration (DEA); the last attempt to modify its standing failed in 2016.

In Michigan, the 2008 Michigan Medical Marihuana Act provided some guidelines for medical MRBs. This November’s ballot will include a legislative provision to “regulate marijuana like alcohol,” and Boldrey expressed confidence that it would be passed.

Boldrey and Khalil provided an overview of the licensing process for MRBs under current law, and underscored the importance of disclosing all information. A “failure to disclose” response by licensing boards, Boldrey said, is like the “kiss of death” when it comes to regulation.

In terms of marijuana banking’s impact on credit unions, Khalil spoke to the current lack of guidance at the federal level from entities such as the National Credit Union Administration (NCUA). In the absence of resources like a statement of position from the NCUA or roadmap to working with MRBs, Michigan’s credit unions must turn to FinCEN guidance and one-on-one conversations with local regulators.

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2018-06-09 00:00:00