Local credit union tries on being banker to the pot industry

Apr 12, 2013

Federal law prohibits banks from helping drug dealers. So where do marijuana businesses keep their cash?  

“We would put the cash in the safe on premises, which obviously makes you nervous. You have to leave it there overnight,” said Cale Burkhart, who sells cannabis-infused lotions. His shop closed last year, but he’s still selling a line called Vita Verde.

“Paying taxes, you can’t hand them a big bag of cash. And dealing with vendors, if you need to order supplies for the shop online, you can’t send them cash,” he said.

For a while, Burkhart and his partner did what most medical marijuana businesses do: They shaded the truth, calling themselves a “natural wellness center,” or an “apothecary,” hoping to avoid scrutiny at the bank.

Now, one of Seattle’s oldest credit unions has stepped up to serve the pot industry—and inadvertently test the limits of state versus federal authority.

‘My initial reaction was, ‘Why go through it?’’

The need for banking could prove an Achilles heel as the state attempts to create an above-board recreational marijuana industry.

Other banks and credit unions have uniformly rejected pot-related businesses, because marijuana is on the federal list of illegal drugs, and a bank that handles marijuana revenue could look like a money launderer. 

“My initial reaction was, ‘Why go through it? If others are saying no, maybe we should say no, too,’" said Bill Hayes, president and CEO of Verity Credit Union.

On the other hand, it is a business opportunity. Ss Hayes talked to the credit union's attorney.

“He says the risk is not that great. If you're going to do it, make sure they have business licenses, make sure you monitor the accounts, and we’ve done that," says Hayes.

‘We don’t know, ultimately, how this is going to turn out’

So far, the size of the transactions have been so small, he says, there has not been anything suspicious to report to federal authorities.

Verity's interpretation of the banking rules does push the boundaries a bit, and highlights the tension between state and federal laws.

“If [a bank] knows that that person is involved in the marijuana business, they are already required to fill out a suspicious activity report—a SARS report—which goes to the feds,” said Scott Jarvis, who, as director of the Washington Office of Financial Institutions, is the top state regulator for local banks and credit unions.

Those SARS reports go to local police, the FBI and the FDIC, which insures the banks.

“I would be very cautious, because we don’t know, ultimately, how this is going to turn out, and ultimately, they could be on the hook,” said Jarvis.

The risk of losing your federal insurance is scary to banks. A group of state lawmakers, regulators, bankers, and marijuana businesses have been meeting to look at other ways meet the banking needs.

For example, marijuana businesses will need to borrow money, and loans are sure to get more scrutiny. So, they’re investigating whether Washington and Colorado could charter a bank that was insured by the states, not the FDIC.

The boon of Verity’s size

At Verity, which started out as the federal employees credit union nearly 80 years ago, the risk looks small, and there is the potential to add a line of business.

“Someone of our size has to be willing to do some things that the bigger places would have no interest in," said Hayes.

He urges all employees to come to him with innovative ideas. Last fall, some of the branch staff suggested they could offer basic checking accounts to those scorned medical marijuana businesses.

Now, they have about 15 marijuana businesses with deposit accounts, and they’re uneasy about adding many more until there is better clarity in the law.

If the federal agencies decide to leave them alone, Verity could get a lot more business as Washington’s legalization system takes shape later this year.