WASHINGTON–NCUA Board Member Rodney Hood told a group meeting here it is time for federal action to “clarify and harmonize” the laws and regulations surrounding the state-legal cannabis industry and marijuana-related businesses (MRB), so that this industry can “take part in the legitimate financial services industry.”
Speaking to the PBC (payments, banking, compliance) Conference in the Cannabis Industry event here, Hood pointed to how quickly cannabis-related issues have evolved, noting that in his first term on the NCUA board, which ended in 2009, he likely would not have attended the PBC conference and the issue wasn’t really on his agenda.
But his appearance before the meeting this year, he said, is “testament to how fast things can evolve in a relatively short time. I take that idea of change and evolution as my theme today, because as a regulator, I’m concerned that the legal and regulatory infrastructure surrounding the cannabis industry is not evolving quickly enough.”
Despite what he called the “remarkable social and cultural change” that has taken place, Hood said federal laws continue to lag.
“There’s been no meaningful legal change on the federal level when it comes to marijuana, despite all the rhetoric around marijuana legalization federally,” Hood said. “As a result, we’ve seen only limited development of the basic commercial banking infrastructure needed to provide financial services to this rapidly growing industry.”
Hood cited data from the Treasury Department’s Financial Crimes Enforcement Network (FinCEN) that showed at Dec. 31, 2020 as there were just 515 U.S. banks and 169 credit unions providing banking services to MRBs in accordance with the 2014 FinCEN guidelines.
Rethinking the Numbers
“Let’s think about those numbers,” Hood said. “My agency, the NCUA, regulates the system of federally insured credit unions, which includes more than 5,000 institutions. Yet only 169 of those are providing services to one of the fastest growing industries in the nation? That can only be described as a serious market failure.”
Hood said many financial institutions remain “unsure of how to proceed” given the lacking guidance, leaving many in the industry trying to conduct the most fundamental business operations through legitimate financial channels. “That is, frankly, an untenable situation,” he said.
What needs to happen next? According to Hood, regulators really don’t like to get out too far ahead of the policy process, but with Congress not taking action he told the meeting “there are times when a regulator in the executive branch needs to step forward to provide leadership, or at least nudge things along, when the policy process isn’t working as it should. I believe that’s the case today with marijuana and the financial services industry.”
Hood praised the agency for steps it took to help expand financial services to the hemp industry while he previously served as chairman by providing guidance he said is “not overly prescriptive or heavy-handed.”
Three Steps to Take
Moving forward, he said he’d like to see NCUA take three steps:
- The working group at NCUA on cannabis banking should act to identify the steps that need to be taken.
- Financial regulators should join to form a formal working group “to take the lead on this issue and to start developing a principles-based approach to cannabis banking.” He said the Federal Financial Institutions Examination Council is ideal for establishing rules.
- Congress should take action to address cannabis banking as the “2014 FinCEN guidelines are simply not enough to support what hemp and cannabis businesses need to grow and sustain.” Hood said when he speaks to NAFCU’s Congressional Caucus next week he plans to encourage CU reps to address the issue during their Hill visits.
Peter Drucker’s Advice
“As the great management thinker Peter Drucker noted, ‘The greatest danger in times of turbulence is not the turbulence – it is to act with yesterday’s logic’,” Hood said. “Or perhaps in this case, to fail to act based on yesterday’s logic. It’s time to get past yesterday’s logic and focus on the future.”