As pot businesses wait for Fourth Corner CU, chartered in Colorado specifically to serve legal marijuana shops, to open its doors for business, one bank in Oregon has decided to close its doors to such businesses.
MBank in Gresham, Ore., has decided to cease providing banking services to the marijuana industry, just one year after it began serving such clients.
The bank said it is giving its 70 cannabis industry clients 60 days' notice that it will no longer provide them with banking services, according to an April 10 press release. The bank attributed the decision to its size and the compliance work required to serve the high-risk industry.
"The cost of compliance was not something a small community bank like ours could handle and properly serve the cannabis-related industry," MBank president and chief executive told American Banker. "We very much plan to be an active resource for the industry, especially with the State of Oregon as they move through writing the rules for recreational legalization."
Starting in July, possession, use and cultivation of marijuana will be legal in Oregon for adults over the age of 21. Medical marijuana was already legal in Oregon, and in neighboring Washington State. Recreational marijuana was voted into law in 2012.
MBank continues to work with regulators "on significant issues," Baker said. The $163 million-asset bank experienced a string of financial problems that almost caused it to fail. The Federal Deposit Insurance Corp. terminated its corrective action directive with MBank in March 2014.
MBank's decision to get out of the legal pot business comes as Colorado's Fourth Corner CU, chartered to serve the legal marijuana industry there, continues to struggle to find deposit insurance and access to the Federal Reserve system. The credit union had planned to open its doors in early 2015, but those two hang-ups have prevented it from opening up shop thus far.
Not So SAFE
Henry Wirz, CEO at SAFE CU in Folsom, Calif., suggested that as attitudes continue to change and the legal marijuana industry grows, credit unions will inevitably end up serving them—but SAFE won't likely be one of those CUs.
Earlier this decade, SAFE provided cash services to the legal medicinal marijuana industry in California, but left that space after about 18 months. Wirz explained that the biggest problem arose because the dispensaries continually exceeded the amount of cash they expected to deposit, often turning in anywhere from $20,000 to $100,000 to the credit union, when they had only told the credit union to plan for $10,000. SAFE filed BSA reports each time that occurred, and the frequent reports eventually caught the eye of the U.S. Attorney's office.
"Our BSA reports clearly demonstrated that this had turned into a fairly robust business, and it immediately gathered their attention," explained Wirz, adding that the government's concern was that the BSA reports showed so much money coming into the dispensaries that it raised red flags over whether or not all of the business being done there was for legal, medicinal purposes.
The U.S. Attorney sent a letter to dispensary landlords informing them that under federal law he could seize their property, since marijuana is still illegal federally, and SAFE informed all dispensaries that the credit union planned to close their accounts within 30 days.
The credit union has been perfectly happy not to have that business. In addition to the BSA issues, Wirz said that SAFE employees didn't like handling the cash, either, since the dispensaries often stored it in the same safe where they stored the marijuana, and the money frequently smelled bad or had marijuana residue on it.
"We couldn't lend, we didn't charge any fees, the money went in and out very fast, so it didn't maintain much in the way of deposits — it was a no-gain relationship with the dispensaries, and for that reason alone... why would you be in that business?" he said. Wirz was quick to point out that SAFE has long worked to support local businesses in the belief that it creates jobs and is good for the economy, and was even asked by the local chamber of commerce to help support the dispensaries.
"I wouldn't go back into the business today just because of all of the hassles with the BSA and the fact that the staff really didn't enjoy working with these businesses," said Wirz.