LAS VEGAS–That there is a huge need to bank the legal cannabis industry is a recognized reality within credit unions. But inside that reality are numerous other realities credit unions serving that industry have had to confront, according to several people who are doing just that.
One answer lies in new innovation and another person offered a perspective on how to bring that about.
During the Underground Collision conference here hosted in the theater inside the headquarters of Zappos by Mitchell Stankovic & Associates, the three people who offered their views on those issues included Beth Carr, president/CEO of Santa Cruz Community CU; Katrina Skinner, president of Safe Harbor Services, and Brian Hamilton, VP-innovation and insights with CUDirect. The session was moderated by Shana Richardson, CEO of Ser Technology.
‘No One Said Anything’
Carr said Santa Cruz Community Credit Union was banking cannabis businesses long before medical marijuana was ever legalized in the Golden State. In the process it gathered significant experience in dealing with NCUA and the state’s DBO and for many years “no one said anything.” That changed when legalization occurred, Carr said.
“When it became legal in California, everyone became excited and worried,” said Carr. “NCUA acted like they had never seen those accounts before.”
Santa Cruz Community has since responded in part by hiring the CUSO Safe Harbor Services to oversee its operations given the demands on the $125-million credit union. Carr told the meeting the credit union has had to limit the cannabis accounts given there is so much cash involved that the excessive deposits can affect capital. She shared the credit union has had experiences with members bringing in boxes of cash. It has also had to close some accounts, including the account of the first cannabis the CU ever served after it wasn’t able to meet the compliance demands.
The Waiting List
According to Carr, there are 120 companies on a waiting list looking to do business with Santa Cruz FCU.
Carr said the credit union uses armored cars to pick up cash and take it straight to the Fed, rather than have that cash come into the branch.
She added SCFCU is charging cannabis businesses fees based on its costs to break even and to cover its compliance costs, and that the credit union is making money on the accounts.
An Overlooked Component
Skinner, who heads up the largest and best known cannabis services-related CUSO in the credit union community—it also provides services to banks–said credit unions know of the need to get cash off the street to improve community safety, but may not realize cannabis businesses have a “huge social justice and social equity component “that aligns with that of credit unions.
Skinner said Safe Harbor is processing $300 million a month in cash and that when it moved into California accounts grew so quickly it had to stop taking on new business. The result has been a queue of 100 clients on the waiting list.
“The customers are there. Our solution includes local financial institutions that we need to step into the space,” explained Skinner.
Welcome to Compliance
Many of those customers have had to open their eyes to the significant compliance demands that come along with having an account with a regulated financial institution, according to Skinner. While Safe Harbor is developing software for validating and monitoring deposits, Skinner reminded, “It’s largely manual. We require paperwork for everything. We have to show the money brought in is from the legal marijuana market, not the black market. It’s terribly cumbersome and can be a lot of stress on the institution.
“We didn’t want to gouge the industry, but it’s been a profitable industry,” she continued. “We expect it to normalize at some point when the bigger institutions come in.”
Future of Legislation?
Asked by an audience member how she is handicapping the SAFE Banking Act, which has passed the House and which takes away the threat of prosecution for institutions serving legal cannabis businesses, Skinner said her recent meetings in Washington with members of the Senate, the Department of Justice and FInCEN made clear the Senate isn’t going to pass a companion bill anytime soon.
“That leaves us with the window of opportunity for those financial institutions willing to take advantage,” she said. “With the risk comes a little bit bigger reward.”
What Is Innovation?
As credit unions have had to innovate in order to serve the cannabis businesses, Brian Hamilton of CUDirect said his company has taken a step back to define exactly what innovation is. What it is not, he said, is invention. Instead, CUDirect defines innovation as “solving a problem.”
Among some of the points made by Hamilton:
- Autonomous Connected Electric and Shared Vehicle (known as ACES) are coming quick and will represent 50% of vehicle sales within three to five years. He said he is often asked if autonomous vehicles will eventually shrink auto ownership by 50%? “It won’t happen tomorrow, but it will happen. It creates just as many opportunities for us as an industry as it does threats and challenges,” said Hamilton.
- Digital Transformation only puts new emphasis on “the importance and gravity of user-centered design thinking in everything we do. Those are not disparate issues.”
- Hamilton asked his audience for a show of hands on how many had taken an uber or Lyft to the event. Many hands were raised. He then asked, “How many of you do Uber loans?” No hands were raised. “You do,” said Hamilton. “Sharing is a reality with the gig economy.”