Bank’s Refusal to Do Business With Marijuana Credit Union Overturned

(CN) – The burgeoning marijuana industry scored a victory recently when the 10th Circuit Court of Appeals overturned a lower court’s ruling allowing a federal bank to deny a request to open a master account for a credit union serving the pot industry.

Since legal marijuana sales began in Colorado three years ago, the industry in the state has skyrocketed, bringing in more than $1 billion in sales in 2016. Many dispensary owners and growers, however, have faced hurdles stashing their profits due to banks that refuse to do business with them while marijuana is still classified as a controlled substance under federal law.

Fourth Corner Credit Union received approval from Colorado bank regulators in November 2014 to open and offer banking and financial services to weed-based businesses. The credit union then sought to apply for a master account with the Federal Reserve, which it needed for electronic bank-to-bank transfers, through the Federal Reserve Bank of Kansas City. “Without such access, a depository institution is nothing more than a vault,” the credit union stated in its initial complaint.

“We submitted our application and didn’t hear anything,” said Mark Mason, co-founder and attorney for Fourth Corner. “They dragged us along for nine months.”

In its amended complaint, Fourth Corner stated that it would not service marijuana-related businesses until federal law allowed it to do so.

“Even after we stated that we would comply with federal law, [the Federal Reserve] said they wouldn’t issue us a master account,” Mason said.

Mason said they were happy with Tuesday’s judgment and look at it as one step closer to legitimizing the marijuana industry. Mason’s son had the idea to start the credit union, but enlisted his family’s help to make it a reality.

“We’re celebrating over here,” Mason said. “Our next step is to reapply for the master account and we’re looking forward to it.”

The three-judge panel was split in its ruling, with each one writing an opinion on the case.

U.S. Circuit Judge Robert Bacharach found fault with the Federal Reserve’s reasons for denying a master account to the credit union.

“In both district court and our court, Fourth Corner has promised to service marijuana-related businesses only if such service is legal,” Bacharach wrote. “In the face of these assurances, the Federal Reserve Bank of Kansas City has continued to resist granting a master account to Fourth Corner. In light of this continued resistance, we know with relative certainty that the Federal Reserve Bank of Kansas City will continue to refuse a master account even if Fourth Corner reiterates the promises that it has made in district court and in our court.”

U.S. Circuit Judge Scott Matheson, Jr. wanted to dismiss the case, claiming the credit union’s change in policy made it a different entity and therefore not subject to the Federal Reserve’s misgivings about approving a master account.

“Assuming this allegation is true, as we must, it raises ripeness concerns because this case has become divorced from the factual backdrop that gave rise to the original dispute,” Judge Matheson wrote. “As the Reserve Bank points out, the new Credit Union—the Credit Union that excludes [marijuana-related businesses] from its membership until serving them becomes legal—is a ‘fundamentally different entity’ than the one the Reserve Bank turned down.”

The third judge on the panel, U.S. District Judge Nancy Moritz, wanted to affirm the district court’s ruling to dismiss the credit union’s complaint with prejudice.

“By providing banking services to these businesses, the Credit Union would—by its own admission—facilitate their illegal activity by giving them bank access that they currently lack,” Moritz wrote.

In a nod to the federal Controlled Substances Act, Moritz cited the 2014 Department of Justice memo that specified how banks and credit unions could handle marijuana-related businesses without facing possible prosecution.

“But while the Cole Memorandum suggested that the DOJ may decline to prosecute banks that meet certain criteria, the Memorandum also made clear that its guidance didn’t create a legal defense for violations of the CSA or certain money-laundering statutes,” Moritz wrote.

Calls to the Federal Reserve made after business hours Wednesday were not returned.

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