Credit union consultant Marvin Umholtz was kind enough to alert me to the news that our favorite marijuana-fueled credit union, Fourth Corner Credit Union, had finally received what it had for so long longed: a master account with the Federal Reserve. However, that approval came with a number of conditions, among them, according to the credit union, the following:
- Fourth Corner meet Colorado Division of Financial Services requirements, including obtaining share deposit insurance;
- Fourth Corner provide the Federal Reserve Bank of Kansas City a letter from Colorado Division of Financial Services stating those requirements were met;
- Fourth Corner provide a letter showing it received share deposit insurance from the National Credit Union Administration or a private insurer that meets Colorado guidelines;
- Fourth Corner adopt bylaws that no services will be provided to “Marijuana-Related Businesses” unless and until federal law allows for such services to be provided to those businesses.
That last bullet point is the kicker. As we discussed a couple of months ago, the credit union admits that having to back off its original business plan of serving Colorado-licensed marijuana-related businesses and, until those businesses become "legal" under federal law, serving only individuals and entities that "support" or "advocate for" the legalization of marijuana, might not generate enough capital and income to permit the credit union to make a go of it. That concern, in turn, might justify the NCUA in refusing to grant share insurance (the credit union and the NCUA are currently in litigation over the NCUA's refusal to do just that). Even the state of Colorado might decide that the change in the business plan imperils the credit union's state charter approval, although that's doubtful, since the state regulator has been a supporter of the credit union throughout its rocky birthing process.
Therefore, although the door has been opened a crack, there are strong breezes blowing that could slam it shut. Moreover, this "victory" does little to provide hope to state-legal marijuana businesses that the banking business is about to be opened to them. For the foreseeable future, except for renegades and outliers, banks and credit unions will continue to consider marijuana-related businesses as a potential legal minefield.
Speaking of outliers, you have sympathy for Fourth Corner's frustration regarding both the Federal Reserve and the NCUA when right up the highway from it in Arvada, Colorado, where Partner Credit Union and its fearless leader, Sundie Seefried, were recently featured in a New York Times magazine article as not only openly providing financial services to marijuana-related business, but selling a "Safe Harbor" program to other financial institutions that instructs them how to do it (and, theoretically, how to comply with the now-rescinded "Cole Memo," and the related FinCEN guidance, which has not yet been rescinded but appears to some of us to be a shaky legal footing). Ms. Seefried is even selling a "how-to" instructional book on her way with the weed business. Partner Credit Union is described by the Times as pot's "biggest banker." Moreover, Ms. Seefried publicly (and you don't get more public than bragging in the New York Times) touts that when it comes to violating federal criminal statutes related to Schedule 1 narcotics, she's not losing any sleep.
She hasn’t been indicted, and she hasn’t been told to stop. Seefried has concluded that, for the moment at least, her chances of facing prosecution are small — “less than 20 percent,” she says.
Maybe it's just me, but a 19% chance of being indicted by a federal grand jury for aiding and abetting illegal drug dealing might make me lose a few hours of sleep. Ms. Seefried is obviously made of sterner stuff.
I assume that Partner is using a Federal Reserve master account to launder marijuana-related dollars through the Federal Reserve system and that the NCUA has given Partner a clean bill of health, based upon the Safe Harbor program. If Partner can laugh in the face of federal criminal drug laws and get away it, why can't Fourth Corner? The NCUA (and, I assume the Fed) will not allow Fourth Corner to launder drug money but, apparently, has no problem with Partner doing the same thing. The founders of Fourth Corner (and the rest of us) have a right to ask "why?"
Obviously, the risks taken by Partner and the other financial institutions that are engaged in this (federally) illegal activity are worth it to them because the money they are making is not small, and, as we all know, "it's all about the money." According to the New York Times article:
For each $100,000 deposited at Safe Harbor, a client pays $450 in fees in the first year and $300 thereafter. (Client companies that serve the marijuana industry but don’t actually sell the drugs, like laboratories, require much less vetting and so pay much lower fees.) Seefried says the Safe Harbor program made a modest profit in its first year — less than $200,000. It became much more lucrative for the credit union in 2016, but Seefried won’t reveal specifics. According to federal data, most of the institution’s sources of income have stayed relatively steady since 2014, but fee income has grown to a projected $5 million in 2017 from nearly $3 million.
Seefried says that about three-quarters of Safe Harbor’s marijuana-selling clients pay less than $1,000 a month per account, considerably less than they would pay at banks, where monthly account fees are said to start at $1,500. Many observers assume that the opportunity to assess lucrative fees is what entices small banks to take on these risky accounts. Federal data show that at Champion Bank, in suburban Denver, which began explicitly working with marijuana businesses in 2014, annual fee revenue on deposit accounts increased by a factor of 68 from 2013 to 2016, to $752,000 from $11,000, even as its main line of business, providing loans, shrank. At Colorado Bank and Trust in La Junta, fees grew elevenfold to $2.9 million.
The Colorado Department of Revenue recently reported that "last year between January and October, marijuana sales reached $1,259,861,988." There's gold in them hills, boys and girls!
If the fact that that your money is made by violating federal criminal laws and that the only reason the businesses and their bankers aren't in jail is because of the sometimes-shaky forbearance of those charged with enforcing those federal criminal laws doesn't deter you, and the myriad potential negative social impacts of such businesses (such as those in Colorado that are alleged by the studies cited in this article and in this study) don't cause your conscience any concern, then based upon the example set by Partner Credit Union, there's no reason that you, too, shouldn't get in on the action. Since it appears that the NCUA appears to be the state-legal drug dealers' regulator of choice, you might want to convert your charter to a credit union, if you're not already one.
I might have non-drug-related bail money squirreled away for a rainy day, though.