A Colorado credit union wants the states’ marijuana industry to bank with it. Its fate, however, is up to a federal judge after Fourth Corner Credit Union filed a pair of lawsuits in Denver this week against the US Federal Reserve and the National Credit Union Administration. The two federal institutions denied the Credit Union’s applications to serve the marijuana industry.
Fourth Corner, chartered by the State of Colorado Division of Financial Services in November 2014, was created to serve the state’s marijuana industry. The credit union has waited on the okay from federal insurers and regulators before opening for business. But this effort was recently derailed.
In a July 2 letter, the National Credit Union Administration wrote that the marijuana industry “does not have an established track record of success and remains illegal at the federal level.” A couple of weeks later, the Federal Reserve rejected Fourth Corners application for a “master account.” And so, the credit union filed two lawsuits on Thursday challenging the decision.
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Many marijuana businesses have operated unbanked due to a lack of options, opening owners and employees up to robbery and theft. The US Treasury Department paved the way for banks to accept money from the marijuana industry. However, most major banks have kept their anti-marijuana policies in place.
Colorado banking regulators thus started on the idea of a credit union specifically for the marijuana industry. Fourth Corner wants to let marijuana shops and growers banks there and also be eligible for lines of credit and other financial products.
“We thought it was a good model,” said Andrew Freedman, marijuana adviser to Gov. John Hickenlooper. “It’s an under-banked industry, and that’s a problem not just for them but for the people of Colorado.” 400 financial institutions have expressed interest in working with marijuana-related businesses, sending thousands of reports on marijuana to federal banking regulators per last year’s Treasury guidance, according to the Washington Post. Significant hurdles remain which cripple the marijuana industry. Businesses in the industry need cash investors to expand or even start up due to lack of credit available to the industry.
“They have to pay a premium to get those banking services,” according to Tyler Henson, head of the Colorado Cannabis Chamber of Commerce.
Everyone wants a solution because nobody wants to give their retail employee a paycheck, $1,500 in cash and ask them to walk home with that late at night. It’s just not safe.
The NCUA wants the cannabis industry first to prove itself.
“The NCUA lacks expertise in the operation, and regulation of the state legalized cannabis industry,” the credit union stated in the complaint. Some cannabis industry experts don’t like Bitcoin for cannabis businesses. Robert McVay, an attorney with the Canna Law Group in Seattle, is one of them. He cited a low Bitcoin adoption rate.
“A number of our clients have asked whether using bitcoin makes sense. Though bitcoin is intriguing, it does not make much sense for marijuana businesses,”McVay stated. “Its primary difficulties stem from its low adoption rate. For a cannabis business to do a significant volume of business with bitcoins, it would need buy-in from its customers, vendors, shareholders, employees, taxing authorities, and others. We just do not see that happening.”
There is nothing stopping most marijuana businesses from dabbling in bitcoins and accepting bitcoins in addition to dollars, but it is not a panacea, nor is it a viable alternative to having a functioning bank account.
Some Bitcoin experts, like Gavin Andresen, disagree.
“Legal marijuana industries could possibly be one of the big industries for bitcoin,” Andresen said. “It gives marijuana growers a way of charging customers that doesn’t involve cash.”
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