Colorado Credit Union Alters Strategy, Sues Fed for Marijuana Banking

A Colorado credit union is suing the Federal Reserve for a master account that would allow it to service cannabis advocacy groups.

Businesses operating legally in the recreational or medical marijuana space have historically had difficulty finding banking services due to marijuana’s federal status as illegal.

In 2014, The Fourth Corner Credit Union of Denver, Colorado, seemed on the verge of a breakthrough in banking for the marijuana industry when it formed a state-sanctioned bank that would have dealt strictly with marijuana businesses. It was the same year that Colorado initiated legal adult use sales, two years after voters had legalized marijuana for recreational use.

However, the Federal Reserve shot down the credit union when it denied Fourth Corner’s application for a master account.

Now, Fourth Corner has taken the marijuana banking battle to court – again – as it filed a lawsuit in September against the Federal Reserve Bank of Kansas City for preventing it from serving marijuana businesses.

The credit union is now fighting with a new strategy. Rather than suing for the right to serve plant-touching businesses, the credit union is seeking a mandate that would permit it to serve cannabis advocacy groups and nonprofits.

History of Conflict

The Kansas City Fed initially denied Fourth Corner’s application for a master account back in July 2015. The credit union had received its Colorado state banking charter after forming in 2014 and, shortly thereafter, applied for a master account, crucial for connecting banks to the nation’s financial system and necessary to operate.

Fourth Corner responded to the denial with its first lawsuit, which was dismissed in January 2016 by a District Court. The credit union then appealed the ruling, and in June of this year a three-judge panel for the 10th U.S. Court of Appeals in Denver voided the lower court’s decision and remanded the case with instructions to dismiss the amended complaint without prejudice.

That ruling left Fourth Corner Credit Union free to pursue another master account. If denied, the credit union could take the case back to court.

Fourth Corner sought the master account, but decided to improve its chances of approval by applying for an account strictly to serve marijuana advocacy organizations until there’s a change in marijuana’s federal legal status.

The Kansas City Fed responded in September not by denying the application but by requesting more information. Citing discrimination, as no other financial institutions are asked for additional information, the credit union filed its civil suit in U.S. District Court in Denver on September 29.

Cannabis Industry Banking Conundrum

The conflict between state and federal marijuana law in the U.S. has created a banking conundrum for the nation’s cannabis industry. Marijuana is illegal under federal law, but 29 states have legalized its use and possession for medical purposes.

Banks and financial institutions have subsequently been hesitant to offer banking service to marijuana businesses, concerned they would be in violation of their federal charters. A few banks, including Orlando-based First Green Bank, are risking federal scrutiny to service cannabis companies.

marijuana industry banking

These concerns have been heightened since the election of Donald Trump as President, with growing worry that his administration will interfere with state-licensed medical and recreational marijuana programs. Having served Marijuana Policy Project for 22 years, PNC Bank closed the advocacy organization’s accounts this summer because all of a sudden they felt it was “too risky.”

Without financial service, marijuana businesses have been forced to function as cash-only operations. They’re unable to accept payments via credit card or provide direct deposit for employees. Additionally, they are unable to submit tax payments electronically. It also puts them at greater security risks, such as the constant threat of being robbed.

What’s Next for Fourth Corner?

The date for the U.S. District Court case hasn’t been set. Once the court does hear the case, it will need to decide whether the Federal Reserve has the right to withhold an account and whether the Federal Reserve’s process for granting a master account includes the right to scrutinize applicants or if that decision should be left up to federal regulators.

marijuana banking

In 2014, federal regulators at the Financial Crimes Enforcement Network (FinCEN) drafted guidelines outlining how financial institutions can serve marijuana businesses. The guidance, which requires banks to vigorously monitor their marijuana-industry customers, doesn’t protect from prosecution or civil penalties but directs prosecutors and regulators to only prioritize cases where financial institutions fail to adhere to the guidance.

Learn More about Marijuana Laws

Marijuana laws in the U.S. are complex and fluid. Right now marijuana laws vary state-by-state. You can learn more about where medical and recreational marijuana is legal by visiting our education page.