GARDNER — GFA Federal Credit Union CEO Tina Sbrega no longer worries about federal agents storming into her office waving an arrest warrant.
In the days before and shortly after GFA began banking with recreational marijuana companies, Sbrega included her arrest, however unlikely, on a list of worst-case scenarios. The federal government deems the drug illegal and considers the handling of funds from marijuana transactions money laundering.
“I always say to people there’s a dark cloud that hangs over our head, because banking an illegal industry is problematic,” she said. But even as the specter of arrest has vanished, she still knows the credit union could face thousands of dollars – or worse – in penalties from the government should it fail to comply with the strict federal regulations for banking the industry.
In September 2018, GFA became the first financial institution in the state to serve recreational pot companies, a decision informed by months of methodical research. Since then, just two other institutions in the state have joined GFA; and only about 6% of banks and credit unions in the country openly bank the industry.
GFA’s move to take on cannabis clients was at once risky and calculated. Its nine-member board of directors worked for 15 months to educate itself on every aspect of the marijuana business, from growing to testing to selling, examining all of regulations and potential pitfalls that come with banking it.
The board sent a committee to Colorado to see how banks there had dealt with marijuana companies, a trip that resulted in GFA aligning with Safe Harbor, a banking division of Partner Colorado Credit Union, which has banked the industry for six years. Later, the credit union held a public forum with police officers, lawmakers, and town and city officials to explain to them its rationale for wanting to bank the industry. Finally, the credit union briefed employees – who were kept out of the loop while the board was mulling what to do – about its plan, gauging how they would feel if it opened its doors to marijuana companies.
Ultimately, GFA’s decision was driven more by its desire to preserve public safety than its hope of turning a profit, Sbrega said. Without access to bank accounts, marijuana businesses have had to rely on cash transactions. And during the trip to Colorado, she saw how problematic it was for those companies to do business in the years before they could go to banks and credit unions.
GFA now banks with more than a dozen marijuana companies, including both licensed dispensaries and those awaiting approval, equating to 40% of the market share. In fact, Sbrega said, its marijuana division has been so busy that the credit union expects to add more staff and create a call center to handle the demand. And soon, the credit union will roll out a lending program for marijuana companies, a service that carries its own set of risks.
According to Sbrega, the credit union’s deposits have not grown significantly from banking with the industry, but it has added members and expects the division to break even.
“Our phones have been ringing off the hook for 11 months,” she said, adding, “We probably have 50 applications in the pipeline at all times. I’ve personally spoken to probably over 200 planned cannabis operators that are in some sort of idea stage or a month away from getting their license.”
‘How does that make a safe community?’
Before it voted 9-0 in favor of banking with recreational marijuana companies, GFA’s board of directors knew very little about the industry itself. And many of its members had voted against the 2016 ballot question on legalizing recreational use of the drug.
Sbrega, who herself voted against the measure, believed the board should start by looking at the banks and credit unions in Colorado that have already started banking with marijuana companies. And a visit West would show the board how the state’s recreational marijuana industry had evolved since sales began there in 2014.
In Colorado, Sbrega was alarmed by what she learned from some of the marijuana companies she met with, hearing more than one call the industry the “wild, wild West,” because of all the cash piling up.
“For years cannabis operators there didn’t have access to bank accounts, and it’s a cash intensive business. So when you looked to Colorado, you saw what people were literally doing with millions and millions of dollars of cash,” she said. “They were storing it in a safe at their business, and then when that safe filled up they were bringing it home, renting storage units. Imagine all these self-storage units being filled with cash, and then it clearly became, for us, a public safety issue.”
Sbrega worried that the same problems might arise in Massachusetts if no bank or credit union welcomed the industry’s business. Preventing all that cash from flowing freely in its communities became GFA’s clarion call.
“Part of our mission is to improve the quality of life for those communities we serve, so when we sat back and said, ‘You know, whether we agree with allowing recreational marijuana or not, they’re legitimate licensed businesses, highly regulated with probably more oversight than any other retail establishment, and yet they’re going to be confined to doing business primarily in cash, with nowhere to put that cash,’ ” Sbrega said. “How does that make a safe community?”
From there, GFA assessed the risks of banking marijuana companies, identifying the two biggest as compliance and reputation.
The task of complying with the various federal regulations for banking with marijuana companies has proven a major hurdle for most financial institutions, many of which stem from the Bank Secrecy Act and Anti-money Laundering statutes, Sbrega said. “Banking the cannabis industry is not for the faint of heart,” she added. “It takes a lot of intestinal fortitude.”
For one, GFA has to adhere to a long list of guidelines from the Financial Crimes Enforcement Network, or FinCEN. The credit union must constantly monitor and analyze their marijuana clients’ financial transactions, as well as file regular reports on those transactions to FinCEN. A single missed report could result in hefty fines to the bank, Sbrega said, or even the government’s stepping in with a cease-and-desist order.
Maintaining its reputation was just as important to GFA as navigating the labyrinth of federal regulations. So after the board voted unanimously to move forward, the credit union took its plan to leaders in its member communities.
“We held a community forum, where we invited police, legislators, city counselors, anyone who was influential in the community, and explained to them our rationale,” Sbrega said. “We set the stage for if someone doesn’t step up and bank the industry, this is what your community would look like.”
Next GFA informed its employees that it was preparing to bank with marijuana companies. The board had not yet released its plan internally, Sbrega said, creating the possibility that employees would object to the idea and resign.
“I thought if there’s one more potential pitfall, it will be telling our employees,” she said. “How many of them will feel either threatened or uncomfortable with it? And how many will potentially resign from the credit union?”
To her surprise, employees reacted with overwhelming support, many of them asking to be a part of the new division.
Taking know your customer ‘to the extreme’
Most retail businesses can walk into GFA today and open an account in under a half-hour.
“You’d show us that you’re incorporated and you have a certificate of good standing with the state. You would show us your identification, and we’d find out who owns the business besides yourself, and we’d do all of the due diligence,” Sbrega said. “Maybe 15 minutes later you’d walk out with your account, and you’re in business.”