State could let credit unions serve cannabis industry

Additional legislation would allow much larger deposits from municipalities

Money bag
VBJ file. New legislation heading for the governors desk will allow credit unions to serve the cannabis industry’s banking needs - including deposits, loans, fund transfers and other financial services.

A workaround for Washington’s cannabis banking woes is heading for Gov. Jay Inslee’s desk, and the legislation could become a model for other states, one expert said.

The bill, SB 5928, sponsored by Republican Sen. Ann Rivers of La Center and strongly supported by the Northwest Credit Union Association, will let credit unions serve the cannabis industry’s banking needs – including deposits, loans, fund transfers and other financial services – while also protecting those groups from prosecution in the state, since cannabis is still federally illegal.

The bill will also give cannabis businesses much-needed access to capital to expand operations, and will protect them from the danger of having too much cash on hand and nowhere to put it, said Troy Stang, CEO of the Northwest Credit Union Association.

“You don’t want all that cash sitting in coffee cans,” Stang said. “It’s dangerous and invites criminals. You want that cash banked. It’s safer for the community.”

The national banking industry has mostly stayed away from the cannabis industry due to potential legal liability working with companies involved in producing or selling the federally illegal drug. And the new bill can’t protect groups from federal prosecution. But the local protections it provides are enough to make the credit union industry more at ease working with the complicated industry.

“The banking environment in our nation, even with credit unions and local banks, we all touch the rails of the federal system,” Stang said. “There’s this conflict, because when state institutions touch those federal rails, there are legal differences between the state and federal level. Much like the legality of cannabis itself.”

The bill states that a person or banking institution working with the cannabis industry “does not commit a crime under any Washington law solely by virtue of receiving deposits, extending credit, conducting funds transfers, transporting cash or other financial instruments, or providing other financial services for the person.”

Cannabis businesses excited about the new legislation

Ann’ette Pedigo, co-owner of Vancouver’s Cedar Creek Cannabis, said her company is excited that business loans could become a reality with the legislation. Lack of access to funds for business expansion has been a problem industry wide, she said.

“Trying to find funds for expansion has been very difficult,” Pedigo said, adding that her company is in the middle of one. “What’s available now is really expensive private funding or merchant lending companies who want to give you money at loan shark rates.”

Her company does have access to payroll and some other services through Twin City Bank in Longview. But the bank can’t do loans and only allows a small percentage of accounts from cannabis businesses. Overall, banking services in the industry are so scarce that there are still many companies operating with cash-only, Pedigo said.

“For those folks who can’t get services, I can’t imagine what it’s like to deal with all that cash,” Pedigo said. “We see more than $200,000 a month go through our doors. If that was all cash, it would be dangerous.”

Three credit unions in Washington have also already started providing banking services, but not loans. They are Salal Credit Union in Seattle, O Bee Credit Union in Tumwater and Numerica in Spokane.

The new legislation will free those groups up to make loans, and will also likely lead to more credit unions working with the Washington cannabis industry in the future, Stang said.

“It’s all services,” Stang said. “It’s the lending side, the banking side. It’s farming – you have major costs at planting time. All those costs are up front. You don’t get paid until your product is sold. Not having access to banking services makes it very hard to grow a business in that industry.”

The Northwest Credit Union Association also frequently talks about cannabis-related banking issues with its counterparts in states like Colorado, California and Massachusetts. And the new bill is something the Northwest Credit Union Association is likely to share with those groups, Stang said.

“We’re all learning from each other,” Stang said. “We want to make sure the state’s resources get focused on the issues. We’re absolutely sharing this with our out-of-state counterparts.”

Ultimately, there will need to be some sort of federal fix of cannabis’ legal status before banking, taxes and other industry headaches are fully resolved. But as more states push for solutions, the pressure on the federal government has increasingly built.

“When states start passing things like this, it creates a pressure point for Congress,” Stang said.
Northwest Credit Union Association is working on other legislative issues

Cannabis banking isn’t the only big issue on Northwest Credit Union Association’s plate this legislative session – the group is also working to allow much larger deposits from municipalities.

That bill, HB 1209, is also likely headed to the governor’s desk in the coming weeks. The goal is to keep more money in the local economy by letting credit unions take larger deposits from municipalities, counties or agencies like fire departments. Currently, the cap is $250,000 because of an insurance limit. But the bill would let credit unions spread the risk across several groups so that they could take on larger deposits.

“It gives governments more choice in the marketplace and a greater rate of return,” said Lynn Heider, a spokeswoman for the Northwest Credit Union Association. “There’s been similar legislation in Oregon, and it’s working well. The credit unions collateralize the risk to protect the funds.”

The $250,000 limit has been a huge barrier for credit unions that want to work with cities and counties, Stang said.

“For an individual, that’s a whole lot of money,” Stang said. “But for a city or a municipality, that is not a lot of money.”

There’s been growing interest from local governments in using credit unions instead of big national banking services. Credit unions aren’t for profit and give dividends or other perks back to their customers when they come out ahead. And credit union members have a say in how the money is used. That’s a big draw in the wake of Wall Street financial scandals and the latest misdeeds of Wells Fargo.

“People are fed up with corruption,” Stang said. “Having a local choice is something that people can get their arms around. The big banks will channel profit into Wall Street. But Wall Street isn’t going to go back and invest in your municipality.”

Credit unions also have access to all the major technological services that big banks have, such as mobile banking, online services and access to ATM networks, he added.

“This is something hospitals, cities, counties, fire departments and all sorts of agencies have been asking us for,” Stang said.