Federal bankers: No account for Colo. cannabis credit union

Trevor Hughes | USA TODAY

DENVER – A Colorado-based credit union created to serve the country’s fast-growing legal marijuana industry sued banking regulators on Thursday after being denied access to the nation’s electronic banking system.

The Fourth Corner Credit Union won organizing approval from Colorado regulators in November, and organizers quickly asked the Federal Reserve in Kansas City in grant it a master account number, allowing it to make electronic funds transfers like any other bank or credit union. The Federal Reserve in Kansas City this month rejected that request because the National Credit Union Administration refused to grant deposit insurance to Fourth Corner. The NCUA is an independent federal agency that charters and supervises credit unions.

The Fourth Corner on Thursday sued both the Federal Reserve in Kansas City and the NCUA, asking a federal judge to overturn their decisions.

The conflict highlights a growing concern for state-level regulators who have seen voters repeatedly approve legal recreational and medical marijuana across the country. Fourth Corner managers say the banking system needs to reflect reality.

"The majority of (marijuana related businesses) are forced to operate in cash only, and to suffer the high cost of handling and safeguarding this cash. The public is at risk in having hundreds of millions of dollars of cash flowing about the streets of Colorado," Fourth Corner wrote in its dual lawsuits. "The ‘seed-to-sale’ state and municipal regulation of cannabis works – until the point of sale when a sale generates cash."

Marijuana businesses in both Colorado and in Oregon struggle to manage the flood of greenbacks pouring in from eager recreational cannabis customers. Banks fearful of running afoul of federal money-laundering laws generally refuse to service marijuana businesses, which end up paying their taxes with bags and buckets of cash. The cash flow has gotten so heavy at the Colorado Department of Revenue that armed guards escort marijuana business owners when they arrive to pay their quarterly business taxes.

Fourth Corner backers had thought they’d found a way around the federal banking restrictions by obtaining a state charter, instead of a federal charter. Under normal policy, state-chartered credit unions and banks are eligible for those Federal Reserve master accounts. But without insurance from NCUA, the Federal Reserve refused to grant access. The NCUA said giving deposit insurance to Fourth Corner would constitute an “undue risk” to its 6,300 members because marijuana remains federally illegal, according to court documents.

"We consider ourselves regulated, legitimate businesses. We just want to have the same access to banking that other legitimate businesses have," Kristi Kelly, owner of GoodMeds marijuana dispensary and one of Four Corner's founding members, told USA TODAY in November. "I don't want to pay people in cash."

Under its charter, anyone with an “interest” in marijuana in Colorado could have become a Fourth Corner member, which organizers said would operate just like any other credit union.

Colorado lawmakers have repeatedly tried to help marijuana businesses get access to banking, and have called on the federal government to change the rules. They say laws aimed at preventing money laundering are actually making things worse for legitimate business owners in Colorado, who in some cases literally “wash” their cash to remove the marijuana smell and avoid tipping off suspicious bankers.

A spokesman for the Federal Reserve in Kansas declined comment Friday. The NCUA could not immediately be reached.