By Ray Birch
GARDNER, Mass.–GFA FCU here just opened its doors to serving the cannabis industry, and does so knowing it is taking a risk.
CEO Tina Sbrega told CUToday.info that the decision to serve legal marijuana businesses, while not easy to make, is the right one for the credit union and the communities it serves. Legal marijuana businesses are served by only a small number of FIs across the country due to the fact cannabis remains illegal on the federal level. GFA FCU is the first CU do so in in its two state market, and began the services Oct. 1.
“About year ago our board and I started having discussions and doing some research on cannabis banking,” said Sbrega, who emphasized that the CU is not condoning the use of marijuana. “If you look at where we are based, in terms of licensed cannabis businesses estimated to open up, we are talking about $258 million in revenue for these businesses in their first full year. That is a lot of cash, if these companies are unbanked, moving around the streets of our communities.”
Massachusetts has legalized medicinal and recreational cannabis.
Improving Quality of Life
“Our mission is to improve the quality of life in our communities,” said Sbrega. “Once we understood the magnitude of the problem and the massive public safety issue, we could not look the other way. Someone has to provide banking services to legitimate, legal marijuana businesses.”
GFA is offering cannabis banking services in its Massachusetts and New Hampshire markets through a partnership with Safe Harbor Services, the CUSO of Partner Colorado Credit Union in Arvada, Colo. that has pioneered services to the marijuana industry. Safe Harbor of Massachusetts and Safe Harbor of New Hampshire operate as part of a separate business entity, a CUSO, created by the credit union, called Lighthouse Banking Solutions.
GFA, too, looked back to its roots when it made the decision.
“We were formed in 1938 to serve French-Canadians that moved to Gardner,” said Sbrega. “Because they were not U.S. citizens, they were considered high risk by local banks, who shunned them and did not provide mainstream banking services to them. That’s the history of GFA—and here we are 80 years later saying there is an unbanked industry that needs to be served.”
Addressing Public Safety
Sbrega emphasized that the legitimate marijuana businesses need checking accounts and recordkeeping services, and also need to be able to pay their employees in forms other than cash. The CEO said paying staff in cash only creates greater public safety issues with people walking around with large sums of money. It also extends the banking problems beyond just the cannabis companies.
Tina Sbrega
“We have heard stories that because people are employed by the cannabis industry, some of them have seen their checking accounts and other banking services closed because their money is coming from the marijuana industry,” Sbrega said. “This is very concerning.”
Sbrega is aware of only one other financial institution in Massachusetts—a bank—that serves the marijuana business, and only medicinal marijuana companies, she said. The CEO said she understands why many may choose to remain on the sidelines in serving this trade.
“I can’t speak for other financial institutions, but I can say that I know the decision is not for the faint of heart,” Sbrega said. “There is the big challenge and conflict we have now between federal and state law, and there are lot of financial institutions not willing to get involved until this conflict is resolved. Plus, it’s very labor intensive line of business—a lot of monitoring and record keeping has to go on. Compliance with BSA and AML regulations is significant and there’s no room for error. I think many institutions may not have the resources for this.”
Reducing Concerns
Partnering with Safe Harbor who has been serving the cannabis industry for four years has provided some comfort in knowing that we can avail ourselves of best practices that have been scrutinized by regulators, said Sbrega.
Sbrega stressed that while the decision to serve the legal pot business was one based on serving a critical community need, she added that GFA is also pricing the services to compensate for the level of risk and monitoring.
“We have not finalized our pricing yet, but it is hard to price for the risk we are taking,” Sbrega said in September. “If there are any violations, the fines from regulators can be significant. So, you have to factor that into your pricing model. And the cannabis industry understands that the price we charge has to be commensurate with our risk.”
Uncharted Waters
Now that GFA is serving the legal marijuana business in its markets, Sbrega said she has looked back on the decision many, many times.
“I would be lying if I did not say I went through periods of excitement and periods of significant concern,” Sbrega said. “We are heading into waters in which not too many people want to go, and we are doing it very deliberately and cautiously. There is a lot to learn here.”
Sbrega said that every time she felt some hesitation, she just looked back on why the credit union is in business.
“There have been times when I stepped back and asked, ‘are we going down the right path.’ And every time I would think about our mission—credit unions were formed to serve the underserved, so this decision to serve the legal marijuana industry is consistent with our mission. How could we say no to this?”