SAN DIEGO–The CEO of a credit union that is one of the few institutions in the country that serves the marijuana industry–and which has recently seen a surge in daily cash deposits to more than $3.5 million–shared some lessons learned and other thoughts with credit unions and state regulators here.
Sundie Seefried, CEO of Partner Colorado Credit Union, which offers Safe Harbor Private Banking to Colorado’s pot industry, walked attendees at the NASCUS Summit here through her experiences and the lessons that have been learned in the three years the CU has been a safe harbor for Colorado’s cannabis industry.
“I’m not here to advocate for marijuana,” said Seefried. “When I and our board went in to this we had to set aside our moral judgements, but safety was at top of the list of what led us to move forward.”
Despite the three years of experience, Seefried made clear she understands the “fears” other financial institutions have in banking an industry that remains illegal at the federal level and which could lead to money laundering charges and more.
“There are about 12 of us who serve this business, and there isn’t any of us that doesn’t have a healthy fear in doing this,” she said. “But every one of us is also focused on taking cash off the street and doing it right and being 100% in compliance.”
The compliance piece, no matter how diligent, is the real challenge, Seefried said, observing that 100 credit unions can pick up the FinCEN guidelines and arrive at 100 different interpretations.
There are also plenty of compliance concerns for dispensaries themselves, said Seefried.
“This is a highly regulated industry. There is not a lot of wiggle room to do anything wrong or their license will be revoked,” she said.
Why Serve the Cannabis Industry?
What motivated Partner Colorado to expand into serving the pot industry?
First and foremost, said Seefried, is safety.
“There was a billion dollars on the streets of Colorado,” she said. “You find out there were and are people walking around with backpacks with $10,000 in cash in them. It’s parked in cars being transmitted across the state. It’s in the neighborhoods in which we live. I talked to a 911 operator about a month and a half ago, and since we have been able to bank about 50% of the marketshare, home invasions have decreased.”
The home invasions often hit the wrong homes, she added.
But there is another fundamental reason Partner Colorado has entered the market.
“We were chartered to serve the unbanked and the underserved. And this was certainly an underserved market,” said Seefried. “So, we felt it fit in with our credit union philosophy.”
Beyond philosophy and safety, there is another pragmatic reason for serving Colorado’s fast-growing pot businesses, said Seefried: Relevancy.
“Is there a credit union not talking about being relevant?” Seefried asked. “Denver is a very competitive (financial services) market and relevancy is very important. Our community changed, whether we like it or not. We had to change with our community; that’s how we remain relevant.”
Seefried said the “business argument was not a problem once we decided” to go in that direction. She said the credit union continues to charge the same fees it did when it launched Safe Harbor.
Other CUs Urged to Be Prepared
Meanwhile, credit unions in much of the country would be wise to understand their communities are changing or about to change, according to Seefried, pointing to the 29 states that have now legalized some form of marijuana, and the 17 states that have marijuana-related initiatives on their ballots this year.
Moreover, waiting on the sidelines for some of the legalities to be addressed are some big players, said Seefried, including alcohol companies (which have seen their sales decrease) and big pharmaceutical companies. The cannabis business nationally did an estimated $24 billion in business. By 2021, that figure is projected to rise to $68 billion, she added.
What type of marketplace realities will those CUs need to adjust to?
According to Seefried, 50% of the cash flow Partner Colorado did in the prior month was actually cash, even as the industry and the CU are working to find ways to reduce cash, such as through plastic cards.
‘Eyes On Everything’
Not surprisingly, serving the cannabis business requires a deep expertise in Bank Secrecy Act laws, with Seefried stressing that “developing talent on staff at this level is not easy.”
The credit union currently has 11 full-time BSA officers at the engagement level.
“Our motto had been “‘Eyes on the owner, eyes on the business, and eyes on the money.’ But after reading FinCEN guidance, realized I needed eyes on everything,” said Seefried.
For that reason, she explained, Partner Colorado rolled out the more formal Safe Harbor Private Banking, with a private banker assigned to approximately 20 client businesses. “If our banker doesn’t feel comfortable about the legitimacy of the money, they can close the account,” she said.
Seefried emphasized the credit union is so cautious that it assumes “every dollar is a cartel dollar, unless we can prove otherwise.”
“We took it that you were guilty until we could prove you were innocent with the right documentation. Our members provide documentation every single month,” she said.
Surge In Deposits
Partner Colorado had been averaging about $80 million in deposits from its cannabis clients, but business has increased recently and it is now doing $3.6 million each calendar day, or more than $100 million in the past month.
Seefried said it takes three-to-four weeks per client to open a new account, and that approximately 30% of new account applicants are denied for various reasons.
She said to date it has closed five accounts. “We have a one strike and you’re out policy.”
How does Partner Colorado handle all those deposits at a time when most CUs don’t need even more liquidity?
For the first two years of its program, Seefried said it kept all funds liquid and on deposit. It now invests the cash in certificates of deposit, with Seefried noting it would less expensive to the credit union to pay the early withdrawal penalty than to borrow the funds.
And should it be forced to quit serving the cannabis companies, Seefried said the exit strategy calls for closing the accounts of its smallest companies first, and then giving the larger companies 90 days to find another provider.
Regulatory Guidance
Seefried, who observed that “FinCEN didn’t write these guidelines to not have this money banked,” said the credit union holds weekly BSA meetings where it will “tear apart transactions” where any of its bankers have concerns.
Any of its bankers who find criminal activity receive a bonus of $1,000 on the spot, she added. To date, no bonuses have been paid.
Partner Colorado has filed 6,400 reports annually, and said FinCEN is “learning as much from them as we are.”