Grass is Greener: Local banks, credit unions weigh potential banking with cannabis retailers

It wasn’t so long ago that growing, buying, selling and using marijuana could land you a lengthy prison sentence.

But Michigan voters decided that wasn’t cool and passed initiatives legalizing medical and adult-use recreational marijuana, one of 44 states that allow some type of cannabis use.

Recreational marijuana has become a billion-dollar industry in the state and could generate $3 billion in annual sales when it becomes widely available, according to a study last year by Michigan State University.

But banks and credit unions – seen as crucial to fostering the growth and safety of this industry – have been left out of the party.

While state law allows the production and sale of marijuana and marijuana-based products, such activity is illegal under federal law. Financial institutions risk losing their charters if they take deposits from or loan money to marijuana businesses.


“We can’t touch it now,” said David Boeve, senior vice president and commercial loan group manager at Independent Bank in Traverse City. “I think the banking industry is interested in it in general because banks love deposits.”

Boeve said Independent Bank “has done a lot of research,” but hasn’t yet taken a position on whether it would bank marijuana businesses should it become legal to do so.

Attempts by the banking and credit union industries to get federal legislation passed allowing them to serve marijuana businesses have failed in recent years. But some are hopeful the political climate could change this year.

In April, the U.S. House overwhelmingly passed bipartisan legislation known as the Secure and Fair Enforcement Banking Act, which would allow financial institutions to bank marijuana businesses. It’s the fourth time the House has passed the bill.

The legislation is pending in the Senate, where its chances of passage are less clear. Some influential members, including Majority Leader Chuck Schumer, are said to favor compromise legislation that would also decriminalize marijuana.

But they’re being pushed to act soon by a bipartisan group of 20 governors, including Michigan Gov. Gretchen Whitmer, who are promoting the SAFE Banking Act as an economic issue.

“To be blunt, legalization is great for the economy: it creates jobs and boosts tax revenue that can go toward our schools, communities, and first responders,” Whitmer said in a news release. “This legislation ensures that Michigan’s marijuana businesses can grow and access the same resources that all legal businesses can.”


Andy Kempf, president and chief executive of 4Front Credit Union in Traverse City, agreed.

“It allows people to have well-paying jobs and keeps the economy growing,” he said. “We appreciate Gov. Whitmer getting on board with other governors and supporting that.”

Honor Bank CEO Norm Plumstead said his bank supports the American Bankers Association’s position that calls for the Senate to pass the SAFE Banking Act.

Without access to bank accounts, marijuana businesses are running their operations on a cash-only basis, leaving them vulnerable to robberies and burglaries. That presents a serious public safety risk, bankers and credit union executives say.

Allowing financial institutions to serve marijuana businesses also would make it easy for state and local governments to collect taxes on marijuana transactions and “improve the financial transparency of the cannabis industry,” the bankers association said.

Some credit unions regard doing business with the marijuana companies as part of their mission in serving people and businesses that are shunned by commercial banks.

Kempf said contrary to widespread belief, there is not a blanket ban on banks and credit unions serving marijuana businesses.


“The way it stands now, if we follow certain rules (regulators) will not come into an organization and shut it down,” he said. “Memorandums from the Department of Justice and state regulators give us a sense of ease. The rules are not easy, but they’re attainable.”

Not following the rules can be costly. The Live Life Federal Credit Union in Fraser, a Detroit suburb, was sanctioned by the National Credit Union Administration in February for failing to comply with reporting requirements.

Such reporting is mandated to prevent illegal practices such a money laundering. The Fraser credit union, which specializes in banking marijuana businesses, was reportedly the first in the country to face a federal crackdown for marijuana-related violations.

4Front is not yet serving marijuana businesses, but “is moving in that direction,” Kempf said.

It will accept as members employees of marijuana businesses who “don’t touch the seed,” and law firms and other businesses that provide services to marijuana businesses, he said.

Most financial institutions regard it too risky to serve marijuana businesses under the current federal law making the production and sale of marijuana illegal.

“Our board of directors absolutely wants to stay away from that,” said Tina Steed, CEO of Northwest Consumers Federal Credit Union in Traverse City. “We’re a small, $28 million credit union. There are just a lot of chances we don’t take.”


Karen Browne, CEO of TBA Credit Union in Traverse City, said her institution continues to study the possibility of serving marijuana businesses.

She said a concern about running afoul of federal money laundering regulations has her credit union conducting “due diligence” of members who work for marijuana business, and lawyers, accountants and consultants that provide services to them.

“If the majority of a member’s income comes from employment of a marijuana business, we would monitor the account to assure there’s no illicit activity,” she said.

Frankfort-based State Savings Bank is interested in serving marijuana businesses, spokesman Doug Zernow said.

“If the laws were to change, we would first need to study them and make sure we understand them,” he said. “So, yes, we would consider banking these businesses once we understood the legal regulatory aspects.”

What the regulatory framework would look like is key to whether many financial institutions will bank marijuana businesses, said Boeve, who is Independent Bank’s top executive in northern Michigan.

“Even if the SAFE Act is passed, it will take a fair amount of time to roll out the regulations,” he said. “The bank has done a lot of research to be prepared for it, but we don’t have a position.”

Ultimately, Boeve said, the regulatory structure and profit potential will determine if banks and credit unions will embrace the marijuana industry.