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Michigan Credit Union League

The Uncertainty of Working With Marijuana-Related Businesses

Currently, 29 states and the District of Columbia (D.C.) have legalized medical marijuana, while nine of those states and D.C. have also sanctioned recreational marijuana. An additional 17 states have legalized cannabidiol (CBD). While certain states, including Michigan, continue to expand laws relating to marijuana, it remains illegal under the Controlled Substances Act, resulting in continued uncertainty for lenders such as credit unions

This uncertainty was heightened on Jan. 4 of this year when U.S. Attorney General Jeff Sessions issued a onepage memo rescinding what is known as the Cole Memo. The Cole Memo, in part, provided credit unions with a degree of guidance for financial institutions that are banking, or seeking to bank, with marijuana-related businesses (MRBs), including how to navigate the conflict between individual state laws and federal illegality.

It remains unclear whether the rollback of the Cole Memo will mean a federal crackdown on marijuana enforcement by federal prosecutors. States, such as Colorado, have signaled a “business as usual” approach while others have indicated concern over the potential for federal prosecutorial action.

What Should Credit Unions Do If They Wish to Serve the Marijuana Industry?

The Financial Crimes Enforcement Network’s (FinCEN) 2014 Bank Secrecy Act (BSA) guidance, which remains in place, clarifies how financial institutions can provide services to MRBs consistent with their BSA obligations. If credit unions wish to bank with MRBs, they should use this as a road map as well as the following framework:

  1. Obtain appropriate legal counsel and have legal counsel present the plan to the board of directors
  2. Use a board-approved policy when addressing MRBs
    1. Which types of MRBs will be serviced
    2. Update credit union risk assessments
  3. Update credit union bylaws
  4. Implement appropriate procedures for staff opening MRB accounts, including:
    1. Ensuring proper licensing with the Michigan Department of Licensing and Regulatory Affairs (LARA)
  5. Development of an enhanced monitoring account program for MRBs
    1. Staffing resources — a staff solely dedicated to MRBs
    2. Utilize anti-money laundering software
    3. Have a third-party vendor assist with tracking MRB activity
      1. Seed to sale
      2. Know your customer
    4. Onsite inspections
      1. Ongoing maintenance
      2. Dedicated staff assigned to specific MRBs — constant communication with the business
  6. Evaluate and enhance physical branch security
    1. Updated cameras that can see dollar bill denominations
    2. Additional vault cameras
    3. Security guard
  7. Review agreement with armored car service — need to confirm that the credit union’s armored car service will transport cash from MRBs
  8. Work very closely with credit union examiners and regulators
  9. The credit union must have a firm exit strategy in the event something occurs at the federal level, such as the U.S. Department of Treasury or FinCEN indicating financial institutions are no longer permitted to bank with MRBs or if the credit union’s regulator requires the credit union to exit

To learn more about the relationship between credit unions and MRBs, AC&E attendees can catch the following sessions, from 12:30–4:15 p.m., June 8: “Cannabis Banking: What’s the Big Deal?,” “Cannabis Banking: Boots on the Ground Perspective” and “Marihuana Businesses: What Credit Unions Need to Know.”

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2018-06-04 00:00:00