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.”

Marijuana companies in California - and in about 35 other states that have some form of legalization for its use and sales - are still largely operating without bank accounts. Entrepreneurs trying to follow the letter of their state's laws have to haul duffel bags of cash between vendors or to pay their taxes.

In downtown Santa Rosa, quarterly pay day at the state's tax office in downtown Santa Rosa is an exercise in stealth and vigilance with armored trucks, added security and CHP officers.

Last week, the U.S. House of Representatives took up the Secure and Fair Enforcement Banking Act of 2019 or SAFE Banking Act, which would prohibit federal banking regulators from punishing financial institutions and its employees that work with cannabis-involved business clients.

California Treasurer Fiona Ma testified before the committee, describing how forcing cannabis dispensary workers to drop off bags of cash to pay their taxes, some driving hundreds of miles to drop it off, puts them at risk of being robbed.

In an interview earlier this month, Ma said she also has thrown her support behind a California bill that would create limited bank charters to allow entities to take cash deposits from cannabis businesses, what she described as a closed-loop bank dealing only with cannabis clients. However, it's a short-term solution while the more than two dozen states like California wait for the federal government to remove cannabis from the list of Schedule I controlled substances, the most strictly limited category of drugs without accepted medical use.

“It's really up to the federal government,” Ma said. “Until we can deschedule cannabis as a controlled substance, banking access isn't going to open up.”

Call said there's no need to create a new system for cannabis banking because the nation's network of banks and credit unions are already capable of doing so - with the added benefit of creating paper trails for financial transactions within the industry.

Federal lawmakers must realize lives are at stake, Call said.

A member of North Bay Credit Union, Jose Luis Torres, 54, of Santa Rosa was shot and killed in his home in March 2018 by a band of intruders who were looking for marijuana and cash and mistakenly thought he had both. Torres and his wife ran an appliance repair business and had business and personal accounts with the credit union.

Law enforcement officials said the armed intruders first stopped at a home in Santa Rosa, shooting and wounding a resident but finding no marijuana and no cash.

Then they headed for the Torres family home. Torres' wife and one of his sons were tied up and threatened. But there was no marijuana at the property, and no pile of cash.

Torres was killed.

“The criminals thought he was storing cash from a cannabis grow in his home when, in fact, he wasn't,” Call said. “It really personalized the issue for us. He was a good friend.”

Four men and one woman suspected in the home-invasion robberies and shootings are awaiting trial at the Sonoma County Jail. A preliminary hearing is scheduled for next month.

“We felt as a credit union that we need to be part of the solution rather than part of the problem and find a way to work with these communities to make them safer,” Call said.

You can reach Staff Writer Julie Johnson at 707-521-5220 or julie.johnson@pressdemocrat.com. On Twitter @jjpressdem.

Editor's Note: An earlier version of this story included an incorrect name for Santa Rosa-based cannabis manufacturing company The Oil Plant.