NEW ORLEANS—It was the tragic death of a long-time member that sent the clearest signal to CEO Chris Call and his credit union that it needed to begin serving the legitimate marijuana business.
“We recognized that marijuana businesses not having access to financial services is a huge public safety issue,” said Call, who leads the $58-million North Bay CU in Santa Rosa, Calif., which has served the cannabis business for the past 20 months. “There was so much cash on the streets, people were walking around town with huge duffle bags full of money. One of our most beloved members was murdered by people who were looking for cannabis money.”
Call explained the member owned a cannabis business, and one night criminals broke into the member’s home and demanded the money they believed was being stashed in the residence.
“But that was not the case, and the member kept telling the criminals the money was not there. He was killed that night. His death made this a personal decision for me,” said Call. “That solidified our commitment to help provide a solution for this problem, a problem that no other financial institutions are addressing in our area.”
In making the commitment to serve legal pot business, North Bay CU made the decision largely to address public safety issues and not as a means to make money, which Call said can certainly be done in serving this market.
“We’ve calculated we have taken upwards of $200 million off the streets and placed that money in a financial institution where it belongs,” he said.
Call was one of three members of a panel group that discussed the issues surrounding marijuana banking in an environment in which, despite pot being legal in many states, still remains illegal on a federal level. The panel spoke to a packed room of attendees at NAFCU’s Annual Conference, with audience-members submitting a large number of questions to the experts.
Nothing to Blow Smoke At
Call acknowledged its decision has been a significant commitment to serve the market, particularly for a credit union under $100 million in assets. As a result, North Bay’s compliance team has grown from one person to 10.
“We had to build a whole new compliance department around serving this industry,” he said. “This business is very labor intensive and requires a lot of support from technology to eliminate many manual processes.”
Call touched on just some of what his credit union had to do to first step into the cannabis banking market and then service it effectively to meet the needs of the pot businesses and the requirements of regulators—all under the watchful eye of legal authorities.
L-R: Tim Moore, Chris Call, Andre Hererra, Ann Kossachev
“Monitoring cannabis accounts requires a lot of due diligence, as does the opening of the account,” said Call. “You do background checks, investigate the principles, do site visits. Once the account has been established, you then have to constantly verify if all the deposits are done for state legal sales. You are in constant communication with the marijuana companies, and you are always monitoring where the cash is coming from and where it’s going to.”
Expenses (More Than) Covered
As would be expected, Call said taking on the business has been costly, but the expenses—including covering a big staff increase—can easily be covered in fees charged to the pot companies.
“Your expenses pale in comparison to the charges you can pass along to these businesses—you can charge a pretty hefty monthly fee” said Call, who stressed North Bay Credit Union has not been gouging pot businesses. “These members are so desperate for a bank account that they are willing to pay just about whatever you want to charge. Our goal is not to make a ton of money from this, but to first provide a much-needed service for our communities.”
Call said the pot businesses don’t focus much on the cost of the service—not only because it allows them to conduct their operations safely, but because it raises the profile of their companies.
“They are willing to pay because having an account at a financial institution is the pinnacle of legitimacy for them. Without that, they are viewed by many as being on the black market,” said Call.
Reputational Risk
Asked about whether banking marijuana businesses presented a reputational risk for the credit union, and whether North Bay was open with members about the move, Call answered “no” and “yes,” respectively.
“We knew this presented a possible risk to our reputation,” said Call. “And we talked about that extensively with our board before moving forward. We talked about what would be our communities’ reactions if they found out.”
North Bay, in the early months after it began serving the marijuana industry, did not publicize the decision.
“About a year into the program we went public with a press release about our new business,” said Call, who noted the CU has not had to advertise to get additional marijuana accounts, as word of mouth spread quickly. “And we have found, since the press release, serving the marijuana industry has not hurt our reputation at all. In fact, it more closely engaged us with our communities. I think it is clear that we are not taking a moral stance on the use of marijuana, we are taking a moral position regarding public safety, and that is what the people here want.”
No Lost Sleep
Calling the decision “gratifying,” Call said he never loses sleep.
“I don’t worry about losing my insurance coverage,” said Call. “I don’t worry about law enforcement…We are providing an important service to our communities and driving economic growth.”