The attorneys representing Colorado's first financial institution created for the marijuana industry are confident they'll get the insurance and master account from the Federal Reserve they'll need to provide services for legal marijuana businesses in the state.
Attorneys Doug Friednash, a shareholder at Brownstein Hyatt Farber Schreck, and Mark Mason, who has his own law firm in South Carolina, got a charter approved by the state on Wednesday for Fourth Corner Credit Union.
Marijuana remains a controlled substance under federal law, so financial institutions in Colorado so far have shied away from serving marijuana businesses because of concern about future consequences.
"The organizers met the requirements in accordance with state law," said Chris R. Myklebust, commissioner, division of financial services, at the Colorado Department of Regulatory Agencies (DORA). "The credit union will need access to the Fed system, but that is not a requirement for me to issue a charter."
Under Colorado statute, a credit union can get a charter before it has obtained insurance, although it has to be in process of getting it.
The newly chartered credit union, which the attorneys say could open by Jan. 1, will need to obtain insurance from the National Credit Union Administration and a master account to access the Federal Reserve payments system.
"We are a state-chartered credit union and as such we are entitled to have a master account," Mason said.
He cited letters written this summer and signed by leaders of the Federal Reserve, NCUA and the FDIC that said the "determination about whether or not to open an account for a cannabis operation should be based on whether the [financial} institution can manage the risk," he said. "We are very capable of managing the risk."
Mason said the founders of Fourth Corner have gotten advice from anti-money laundering experts, former regulators, academics and attorneys to ensure they can handle the risk of dealing with marijuana money.
"Here's the reality — absent banking institutions like this, we will not have a safe regulated system (for marijuana businesses) ," said Friednash, who recently went back to private practice after a stint as the Denver City Attorney. "What this alternative offers up is a safe and sound approach that creates a transparent system where we work cooperatively with the government."
Friednash said his first experience in dealing with the banking marijuana dilemma came when he was the city attorney. "We didn't have a clear answer from the feds, but in order for this experiment to work, you have to have the tools to deal with it."
"This is really a public safety issue ," Friednash said. "You hear stories of people walking around with $30,000, going to King Soopers to try to get money orders … and paying their employees in cash. It's a recipe for disaster."
Mason said the credit union organizers are close to opening for business, although he didn't say where it would be located.
"We're getting everything lined up to pull the trigger, and we're on the one-yard line," he said.
The credit union will offer simple services at first, he said, such as "opening accounts and accepting and validating deposits from either non-cannabis businesses or lawful marijuana payments."
As federal regulations become clearer, they'll "add other services and provide them to our members based on the type of account," Mason said.