North Bay Credit Union takes rare step of opening business accounts for cannabis operators
About three years ago, Mara Gordon deposited money from an investor into a business bank account for her company, Calla Spring Wellness, that she started to provide guidance for people with health problems interested in adding cannabis to their medical treatment.
Cannabis was merely mentioned on the firm's website, but the deposit triggered an inspection by Citibank's compliance department to review transactions for evidence of possible money laundering and other illegal activity. Marijuana remains illegal under federal law and because most banks are insured by the federal government, those cannabis businesses following state laws still are scrutinized like drug slingers with black market cash.
“They did the governance and shut down all of our accounts, including my personal account that I've had since 1992,” Gordon said. “They were going to make me prove every penny in my account was not, quote-unquote, drug money. I said, ‘I'm not a drug dealer.'?”
Rather than closing bank accounts, some financial institution executives nationwide are trying a new tactic: Announcing they'll extend banking products and services to the cannabis industry. There were 375 banks and 111 credit unions with accounts for marijuana-related businesses as of September 2018, according to the U.S. Treasury Department's Financial Crime Enforcement Network.
It's a risky move in defiance of federal law. Across California where recreational marijuana sales became legal Jan. 1, 2018, cannabis enterprises typically remain cash-only businesses unable to access traditional commercial banks.
But in Sonoma County giving legitimate cannabis entrepreneurs a safer way to do business fit the mission of North Bay Credit Union, a Santa Rosa institution started 70 years ago by local farmers, CEO Chris Call said.
“We have a situation here in the county and throughout the North Bay where cannabis operators are walking around the streets of our cities with backpacks full of cash to pay their bills,” Call said. “It's really an unsafe situation.”
About a year ago, North Bay Credit Union began opening commercial checking and savings accounts for cannabis businesses with operations between the Golden Gate Bridge and Mendocino County that made it through a thorough vetting process that involves background checks of management, a financial analysis of the company and its tax returns. North Bay is believed to be the only financial institution in the regional market openly providing banking services to cannabis companies.
Cynthia Negri, Redwood Credit Union's chief operating officer, said Redwood does not work with cannabis business clients for two reasons: the credit union isn't set up to handle large cash transactions and it must follow federal regulations. Managers have begun preemptively asking new customers if they are involved with the cannabis industry.
“Cannabis (business) activity is not legal under federal law, and being federally regulated we're unable to serve those businesses,” Negri said.
Last year, executives at Exchange Bank of Santa Rosa said they would close any account if they discover the person or business has cannabis connections.
Meanwhile, Gordon also founded Aunt Zelda's, a line of cannabis-infused oils marketed for people with illnesses like epilepsy and cancer, and she opened a cannabis oil manufacturing firm, The Oil Plant, with facilities in southwest Santa Rosa.
The Oil Plant is among those businesses that passed what Gordon described as the credit union's “grueling” qualification process for her business to open commercial banking accounts. Then the credit union invited Gordon to join its six- person board of directors. She took a director's seat in October, making her perhaps the only cannabis business owner on a financial institution's board in the country, Call said.
North Bay Credit Union has added 10 staff members who work solely on cannabis business banking and compliance matters, which include verifying all money exchanged between the companies and vendors, customers and distributors involve legal and licensed entities.
The credit union charters armored trucks to collect cash from these businesses and transport the money to the Federal Reserve Bank of San Francisco to keep marijuana-related cash out of its local branches.
Today, cannabis businesses make up roughly 10 percent of the credit union's $60 million in assets, Call said.
“It has been the elephant in the room for a long time,” Call said. “And when Prop. 64 made adult use legal (in 2016), it just was kind of a turning point. Now it was going to be a normal part of our economy, and we needed to treat it as such.”