Harder Stuff: Credit Union Moves From Beer to Marijuana
Credit unions were formed to serve the underserved. So when members told the $195 million O Bee Credit Union they were entering the recreational marijuana business, the Olympia, Wash., credit union originally chartered in 1955 to serve workers at Olympia Brewing Co. knew they were ready to move on to harder stuff.
For those members, it wasn’t just a matter of passing the pipe. They formed the vanguard of a newly legalized recreational marijuana industry. They needed support from a financial institution to grow businesses designed to serve this emerging market segment, Roberts said.
Washington voters in November 2012 quietly passed Initiative 502, which defined and legalized small amounts of marijuana products for adults over 21 years of age. The vote was cast 56% in favor of I-502.
The initiative has since spawned an increasing number of growers, processors, producers and retail outlets dedicated to serving consumers of what is still considered a Schedule I controlled substance under federal law.
“Everyone understands it’s still against federal law, but it seems to have been accepted calmly by most of our citizens and it’s a developing movement,” said Scott Jarvis, director of the Washington Department of Financial Institutions, the state regulatory agency for banks and credit unions. “I don’t say ‘a growing movement’ anymore because that just gets laughs.”
The recreational marijuana industry operates under the oversight of the Washington State Liquor Control Board, and participating businesses undergo rigorous WSLCB scrutiny prior to being licensed, including criminal background checks.
Financial institutions serving the industry are required to adhere to appropriate WSLCB regulations, as well as practice the same due diligence and financial care they would with any other commercial account, Jarvis said. The regulator notes that the number of banks and credit unions serving the industry slowly continues to rise.
“We intentionally do not keep a list,” said Jarvis of the number and names of those financial institutions. “We do know anecdotally that there are about two dozen banks and credit unions serving the industry, and half-and-half might not be a bad breakdown between the two.”
In O Bee CU’s case, serving what are called I-502 members in honor of the referendum is anything but secret and things have proceeded smoothly from the start thanks to solid planning and execution on the part of staff, according to Jenni Roberts, O Bee’s SVP/COO.
“The WSLCB did a fascinating and fabulous job putting together guidelines on which we could piggyback our efforts,” Roberts said. “We put together a 50-page plan that our board unanimously approved last August.”
Serving I-502 members is as much a public safety issue as it is a financial one, Roberts said. The legalized industry has greater business acumen and financial services support at its disposal.
O Bee CU currently serves 30 I-502 accounts, Roberts said. The credit union conducts a risk assessment before offering I-502 members checking, savings and money market accounts, as well as debit cards and ACH services. I-502 members do not have access to shared branching, cannot make cash deposits at ATMs and, as of right now, cannot borrow money. The lending restriction may change within the year, she added.
O Bee CU charges its I-502 members an application fee of $500 for the first WSLCB licensee, and $250 each for subsequent licensees from the same company. There also is a $150 per month maintenance fees and a cash in/out charge of 35 bps on all monies deposited or withdrawn. The services are priced simply to cover staffing and oversight related to serving these members, Roberts said.
“I absolutely believe this business will grow, and I hope other credit unions will take on the opportunity to serve this industry when they are ready,” Roberts added. “Our I-502 members are thankful we decided to take on the risk and serve them so that they could operate as businesses.”