Feds Approve Master Account for Nation’s First Cannabis Credit Union

After a 39-month legal battle, the Fourth Corner Credit Union, the nation’s first state-chartered marijuana credit union, finally received a conditional approval by the Federal Reserve Bank of Kansas for a master account that will eventually allow the Denver-based credit union to open its doors.

In a Feb. 2 letter, FRB-KC said it will issue a master account to TFCCU but only after it meets certain conditions with the Colorado Division of Financial Services. The credit union secured its state charter to serve the marijuana industry in November 2014.

According to the letter, the credit union cannot service marijuana-related business and that it will implement appropriate controls and enhanced due diligence to ensure that TFCCU does not provide financial services to MRBs that includes “plant-touching businesses or persons with ownership in those businesses.” That was a major issue with the FRB-KC because marijuana is prohibited under federal law.

After FRB-KC denied the credit union a master account in 2015, TFCCU filed a federal lawsuit to secure a mandatory injunction that would compel the FRB-KC to issue a master account. Although a federal district court judge dismissed the credit union’s case in January 2016, an appeals court ruled in June 2017 that allowed TFCCU to obtain a master account.

When FRB-KC denied TFCCU a master account application again in the fall of 2017, the credit union filed another federal lawsuit until both sides agreed to resolve their dispute earlier this month.

The major dispute over MRBs was addressed several times in the FRB-KC’s conditional approval letter.

“From the inception of our charter, direct-licensed cannabis businesses (or MRBs) comprised only 25% of our portfolio,” Deirdra A. O’Gorman, TFCCU President/CEO, told CU Times Wednesday. “Therefore, we will be focusing our efforts on the other members of our field of membership --- supporters of legalization, businesses who support the industry, industry trade associations, and approved charities.”

Another stipulation in the FRB-KC letter requires that the “MRB component of TFCCU field of membership shall remain dormant until said change in the (federal) law.”

FRB-KC also requires the credit union to secure share deposit insurance that is accepted by the state regulator or from the NCUA.

However, in July 2015 the NCUA denied TFCCU’s application for deposit insurance because of “fundamental concerns about the inherent risk of TFCCU’s business model.” The credit union sued the federal agency, arguing that the NCUA’s denial letter violated a regulation that required it to assist TFCCU to obtain deposit insurance. Although the NCUA moved to dismiss TFCCU’s complaint in July 2016, that motion was denied by a federal district court judge.

Because TFCCU’s case against the NCUA is still pending, it is likely that the credit union will stay with a private insurance option that is approved by Colorado’s regulator.

“When deciding to move forward with the lawsuit, our board of directors and myself had always hoped that we could find a way forward with the NCUA without involving the courts, and the same sentiment holds true today,” O’Gorman said. “We look forward to advancing the dialog with the NCUA and are optimistic we can find a solution.”

She could not yet say when the credit union expects to open its doors for business.

“I wish I could speed-up the process and say tomorrow, but realistically we still have milestones to go,” O’Gorman said. “We’ll have a better idea on the timeline to opening our doors after we meet with Colorado DFS.”

The cannabis CEO declined to divulge how much in total capital has been raised to support its business operations.

“We have credit union sponsors who have stuck with us throughout this journey, but unfortunately we are not at liberty to disclose the status of their contribution until we have finalized our next steps with the Colorado DFS,” she said. “I can say that we have put significant thought into all the costs and have detailed projections from experts in the credit union space that informed the amount needed to get operational and beyond.”

Original article can be found here.

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