By Ray Birch
SEATTLE—One of the first credit unions in this state to offer financial services to the marijuana industry has undergone its initial examination since the move, and said regulators and the credit union itself have learned some lessons.
Salal CU began offering services to the cannabis industry earlier this year. Marijuana was legalized in Washington State in 2012.
Bob Schweigert, SVP CLO, said the credit union now clearly understands what the federal and state regulators are looking for at credit unions that serve pot businesses, and that the regulators have become more comfortable with the CU’s policies and procedures regarding managing relationships with the cannabis industry.
Schweigert said Salal Credit Union’s approach to serving marijuana businesses has not changed post-exam. “We actually feel a lot better now about serving this industry and about working with examiners on the matter. This exam was beneficial. We got it out of the way now and are working together. We feel that the NCUA and the Washington State Department of Financial Institutions want to work with us as we provide banking services to this industry.”
While the joint state and federal exam conducted in October was “cooperative” from the start, Schweigert said that examiners, particularly NCUA, had yet to receive clear guidance on what to look for when examining a credit union that serves the marijuana industry.
Pot Illegal Under Federal Law
At the outset, the biggest issue NCUA examiners had was addressing the fact that marijuana remains illegal under federal law, the CU explained.
“Once NCUA examiners ran this matter up the flagpole they became comfortable with (the difference between federal and state laws),” explained Schweigert. “I believe clear guidance has come out now about this from NCUA to its field team.”
Despite Colorado and Washington legalizing marijuana for recreational use and more than 20 states approving it for medical use, most credit unions and banks have shied away from accepting deposits from marijuana businesses due to federal law and concerns over being considered criminally liable for the actions of the businesses' customers. Drug enforcement agencies also have the power to seize dispensaries' deposits.
There are some 105 financial institutions in the U.S. providing banking services to marijuana dispensaries and other pot businesses, according to the Financial Crimes Enforcement Network.
Throughout the exam, the $370-million Salal communicated to state and federal examiners regarding the due-diligence it performs regarding any marijuana business it serves. “We went over our policies and procedures, our monitoring of these businesses and their accounts. It was an educational process for all parties.”
Schweigert believes NCUA also learned that the state of Washington is doing a great deal of due-diligence itself, monitoring and reviewing licensed marijuana businesses. “The state is carefully checking out these companies. The businesses that come to us have already been scrutinized by the state. The state is making sure that these businesses are not distributing product to children, that product is not crossing state lines, things of that nature. Our job is to track the money and understand where it is coming from and where it is going. And we have policies and procedures to do that.”
Examiners did ask the CU to make some adjustments to policy, but Schweigert said they are minor.
“Overall, examiners said we could move forward in the manner in which we are moving,” said Schweigert. “But they said we should tighten a few policies around lending to the cannabis industry, add some additional monitoring and make sure we regularly consult with our board.”
Schweigert said the credit union had reached out to the DFI asking for advice on how to approach serving the marijuana industry and that Salal was told that if it followed FinCEN guidance and the Cole Memo (Deputy Attorney General James Cole’s letter outlining the federal government's new policy regarding the enforcement of marijuana offenses) “everything should be OK.”
State Quick To Reach Out
Schweigert added that the DFI provided some direction on how it would examine the CU and how Salal should handle opening accounts for pot businesses. “I think the state regulators were quick to reach out because cannabis is legal in this state,” added Schweigert, who said NCUA had not provided any guidance prior to the exam.
Salal decided to serve the cannabis industry to take some money off the streets, providing greater safety to the pot businesses and to the communities. Salal is working with I-502 licensed companies.
“The marijuana businesses become more secure and we gain some banking opportunities as well,” explained Schweigert. “We believe credit unions are in place to help small businesses, especially start-ups.”
Schweigert acknowledged that the credit union invests a great deal of time in managing the pot accounts. “With all the guidance and regulations in place, we want to make sure the accounts are priced right.”
The CU currently has 12 accounts with marijuana businesses and expects to open a total of 20 by the end of the year.
“Dollar amounts in the accounts are fairly small at this point because the product is just starting to reach retail stores,” said Schweigert, who added the CU recently closed its first loan to a marijuana company. “We are opening accounts for retailers, producers and processors. They are using checking, money market—all basic business banking accounts.”
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