Some four years after being granted a charter to serve the legal pot industry in Colorado, Fourth Corner CU still can't open its doors for business, despite recently winning access to the Federal Reserve.

The good news: the Federal Reserve Bank of Kansas City has conditionally granted Denver-based Fourth Corner Credit Union a master account. The bad news: one of the conditions is that the credit union still can’t serve the market it was chartered to serve — the legal pot industry in Colorado.

Fourth Corner Credit Union was established in 2014 to serve Colorado’s legal marijuana industry after the state’s voters approved adult recreational use of the drug in November 2012, but has been unable to fulfill its mission because it cannot obtain federal deposit insurance since pot is still illegal at the federal level. The credit union has at different times filed lawsuits against the National Credit Union Administration and the Federal Reserve in attempts to be granted insurance and a master account.

Signage advertising "The Green Doctors $40 Medical Marijuana Evaluations" are displayed in the Venice Beach neighborhood of Los Angeles.
Signage advertising "The Green Doctors $40 Medical Marijuana Evaluations" are displayed in the Venice Beach neighborhood of Los Angeles. Bloomberg News

Earlier this month, the Federal Reserve Bank of Kansas City sent a letter to Fourth Corner CU stating the credit union needs to meet the following conditions to qualify for a master account:

  • Satisfy all requirements imposed by the Colorado Department of Financial Services, including obtaining share deposit insurance.
  • Provide to Kansas City Fed a letter from the Colorado DFS stating the credit union has satisfied all requirements and is permitted to commence banking services to the CU’s field of membership, as limited by a settlement agreement between the Fed and Fourth Corner CU.
  • Provide a letter from the National Credit Union Administration showing Fourth Corner has obtained deposit share insurance, either from NCUA or a private insurer acceptable to the Colorado DFs.
  • Fourth Corner must amend its bylaws to state it will not provide service to “Marijuana-Related Businesses” unless and until it becomes lawful under federal law to provide banking or financial services to such MRBs.

Deirdra O’Gorman, president and CEO of Fourth Corner CU, told Credit Union Journal the credit union was unable to disclose the details of the settlement agreement it reached with the Federal Reserve Bank of Kansas City.

“But we can say how appreciative we are for their efforts to find an amicable solution,” O’Gorman said. “At the end of the day, both Fourth Corner Credit Union and the Federal Reserve Bank of Kansas City want to continue the safe and sound practices that provide the solid foundation for our financial system. Fourth Corer Credit Union will continue to advocate for direct-licensed cannabis businesses, and will be ready to be their credit union once there is federal legalization. In the meantime, we will focus our efforts on serving the other members of our charter – supporters of legalization, businesses who support the industry, industry trade associations and approved charities.”

O’Gorman noted the reaction to the settlement with the Kansas City Fed was varied, with some legalization advocates describing the move as a “win” for cannabis banking, and others calling it a hollow victory, since Fourth Corner CU still is not allowed to perform its originally stated purpose of providing services to state-licensed marijuana dispensaries.

“The conditional master account allows Fourth Corner Credit Union to serve supporters of legalization, ancillary businesses — such as trade associations, consultants and accountants — and approved charities, but does not allow us to provide services to persons or businesses holding state-issued marijuana licenses,” O’Gorman explained.

But even this limited ability to do business is contingent upon the credit union establishing deposit insurance.

"Our case with the NCUA is still pending, but our priority now is to work with Colorado DFS on next steps before we move forward on the other pieces necessary to open our doors, such as deposit insurance," she told CU Journal. "Ideally, if everything works out, we would have a structure like the most credit unions with the NCUA as our deposit insurer."

‘It is a good start’

Credit Union Journal spoke with three advocates who have been in the vanguard of efforts to normalize cannabis banking to get their thoughts on the Federal Reserve Bank’s decision regarding Fourth Corner CU, and what the future of payments might look like for the industry.

Sundie Seefried, CEO of $352 million Partner Colorado Credit Union, Arvada, Colo., said the fact the Kansas City Fed placed limitations on Fourth Corner CU’s ability to operate has a silver lining.

“It is a great start even if it is limited,” she said.

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Fourth Corner CU was granted a Fed master account, but one of the conditions is that it won't serve the very group it was chartered to serve: legal pot dispensaries in Colorado.

Seefried, who authored a first-of-its-kind, how-to book on cannabis banking, “Navigating Safe Harbor: Cannabis Banking in a Time of Uncertainty,” added there is “such great demand for banking in this industry that having another credit union serve the industry is a positive step forward.”

Kenneth Berke, co-founder of Calabasas, Calif.-based PayQwick, a compliance-based electronic payment hub that enables state-legal marijuana commerce to transact – and has been called “the PayPal of pot” – agreed that any step toward banking services for the industry is a good one.

“Ancillary businesses serving the cannabis industry, even those that never touch a plant, have had their bank accounts closed simply because they provide services to cannabis-related businesses,” he noted. “Therefore, we need financial institutions such as Fourth Corner Credit Union to serve these businesses.”

“It is a positive development,” Berke added. “We need to crawl before we walk, and walk before we run.”

Dr. Jeffrey Friedman, a longtime cosmetic surgeon, is working with a cannabis-related business development company in Northern California. He told Credit Union Journal he has a different perspective than most people.

Though he called the Fed’s move “a baby step in the right direction,” he added that “it does not solve the major problem of banking for retailers of cannabinoid products in the cannabis space.”

Where does cannabis banking go from here?

Friedman said the final step is for banks “to stop seeing this industry in the negative light in which they see it now.”

“I am unaware of banks in the cannabis space losing their ability to conduct business due to federal or state regulators yanking their licenses,” he said. “The big banks are not seeing this industry as big enough or profitable enough for them to commit the resources to conduct the compliance steps necessary to be fully in the cannabis space. This is primarily true of the big banks that have so much other business of lower risk. This is why you see smaller banks and credit unions to some extent jumping in. For them the profit motive justifies the hassles involved.”

PayQwick’s Berke said he believes the real question is: what is the next step needed to encourage more financial institutions to serve the cannabis industry?

“Rescheduling cannabis as a Schedule II Controlled Substance would be best, but that does not appear likely to happen any time soon,” Berke said.

In the interim, Berke continued, it would help if “first [the Financial Crimes Enforcement Network] reiterated and strengthened the guidance it issued in 2014 telling financial institutions what they need to do to serve the industry and, second, the FDIC and NCUA issued written guidance or policies either adopting the Fincen guidance or advising banks and credit unions about what is required to serve the cannabis industry.”

Partner Colorado’s Seefried said she believes time will bring more financial institutions into the market.

“Once Fincen updates the guidance, I think banks and credit unions will take that as a good sign and continue to develop programs,” Seefried predicted. “It is a long process to get a program in place from start to finish and there are many already in the development phase. There is great interest in solving the banking problem and I think it is only a matter of time before every state in which cannabis is legal has access to banking.”

Seefried said the most important factor – other than guidance – is to get legislation passed that would provide a safe harbor for financial institutions.

“The Safe Act or similar legislation keeps surfacing and just needs to gain support,” she asserted. “Also, the Rohrabacher-Blumenauer amendment attached to appropriations budget not only must remain intact, it needs to be modified to either drop ‘medicinal only’ or add ‘adult use’ as well. We cannot bank half a business, as that only lends itself to opportunities for illicit activity.

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