Opportunities in Embracing the Legal Marijuana Industry
On Nov. 8, voters will be on the edges of their seats awaiting the outcome of one of the most unusual and controversial presidential races in recent history. In some states, election drama will amplify with the consideration of another hot topic – marijuana legalization.
As of now, California, Nevada, Massachusetts, Arizona and Maine plan to include recreational marijuana use on voters’ ballots, potentially joining Colorado, Oregon, Alaska and Washington as states where the drug is legal for recreational use. Voters in Arkansas, Florida and North Dakota will consider legalizing medical marijuana.
The push to legalize recreational marijuana looks especially promising in my home state of California, where, according to the LA Times, more than 60% of those polled are in favor of the Adult Use of Marijuana Act, which would allow people 21 and older to buy up to an ounce of pot and grow as many as six pot plants. It would also slap a 15% sales tax on medical and recreational marijuana, fueling an estimated $1 billion in revenue per year in the state, according to The Cannabist.
Despite growing acceptance of the drug and facts that show it is far less dangerous than alcohol (for instance, the U.S. Centers for Disease Control and Prevention reported booze kills more than 37,000 people annually, while the CDC doesn't even have a category for marijuana-related deaths), it remains taboo. While it's socially acceptable to get a little tipsy at an office party or post an image of full wine glasses with the hashtag #roseallday, you won't find someone instagramming a collection of edibles from their local dispensary or openly discussing getting stoned with coworkers. Plus, many employers can still legally fire or refuse to hire someone who tests positive for THC. It's a little like porn – plenty of Americans indulge in it harmlessly, but would be mortified if their habit went public.
Those who adamantly oppose the idea of marijuana use going mainstream include members of the credit union community. CU Times has reported on the prospect of offering marijuana businesses traditional financial services, therefore reducing their risks of operating in an all-cash environment. It seemed each time we published an article on the topic, we received harsh comments from readers who wouldn't even entertain the idea of working with business owners whom they felt were condoning an immoral, dangerous activity.
Because the drug remains federally illegal, marijuana businesses must deny debit and credit card payments due to card companies’ fears they’ll be held liable for money laundering, with many of the businesses keeping ATMs onsite for customers. The Treasury Department permits financial institutions to do business with legal marijuana businesses under certain conditions, but it's still difficult for these businesses to obtain loans, although some have managed to by putting up real property instead of inventory as collateral, The Cannabist reported this year.
Still, some credit unions have been brave enough to welcome marijuana business owners as members, including the $207 million Obee Credit Union in Tumwater, Wash., and the $1.5 billion Numerica Credit Union in Spokane Valley, Wash. It should be noted that for any institution that chooses to do business with the marijuana industry, the choice comes at a cost. Obee and Numerica had to hire more people to handle the extra work involved, including extensive application processes, additional account monitoring requirements, and substantial increases in SAR and CTR filings. For small credit unions without the resources to manage these responsibilities, avoiding the pot industry is an understandable move.
With a major state like California coming close to legalizing recreational pot – something that may tip the scales on legalization efforts in other states and pressure the federal government to give existing pot businesses easier access to financial services – it's time for more credit unions to embrace the idea of serving the marijuana industry. Doing so is right in line with the credit union philosophy of people helping people in two ways: It makes communities safer by reducing the volume of cash business owners are forced to keep on hand and supports the growth of small businesses.
Here's one reason why the latter is true: California's proposed Medical Marijuana Regulation and Safety Act intends to prevent vertical integration by restricting the number of marijuana business license types and locations a single business owner can possess and operate, keeping businesses that enter the industry from growing too large. Should the MMRSA go into effect as it's currently written, credit unions that serve those business owners would be considered advocates for local economic growth – not a model that allows a few big businesses to monopolize the industry.
Just as it took time for people to embrace the selling of alcohol after Prohibition, it's going to be a while before society fully accepts legal marijuana businesses in their communities. Financial institutions might have been hesitant to open accounts for liquor retailers in the 1930s, but they wouldn't think twice about it now.
Instead of hanging on to unsupported fears about this emerging industry, try having an open mind – if not to marijuana use itself, than to what its sales can do for the economy. This industry will soon become too big to ignore and give credit unions opportunities that are too big to miss.