Fourth Corner Credit Union gets conditional approval from Federal Reserve for marijuana-related banking

(This story has been updated from an earlier version.)

After a 40-month battle, a Colorado credit union that’s determined to serve marijuana-related companies has finally won conditional approval from the Federal Reserve to launch its business.

But the Fourth Corner Credit Union will not be serving plant-touching businesses – as it originally had planned to do – but will instead cater to advocacy groups, charities and ancillary companies such as accountants.

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The Federal Reserve Bank of Kansas City informed The Fourth Corner Credit Union in a Feb. 2 letter that it would “conditionally grant” the Denver financial institution a so-called master account.

The approval represents a milestone for the cannabis industry, given that many mainstream banks and financial institutions have shunned marijuana accounts for fear of running afoul of federal regulators.

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It’s also the first time a regional Fed bank has granted such a green light.

“No federal reserve bank has ever gone on record to say that a marijuana-related business can be banked, even if it’s an ancillary business,” said John Vardaman, an executive at an ancillary cannabis company who co-wrote a 2014 Department of Justice memo that gave banks and credit unions tacit approval to serve marijuana businesses.

The Kansas City Fed’s decision also is significant because it comes only a month after U.S. Attorney General Jeff Sessions rolled back Obama-era protections for state-legal cannabis businesses.

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“We feel vindicated,” said Mark Goldfogel, executive vice president of industry relations at Fourth Corner.

“We feel like we’ve been heard. We feel like we’ve been able to accomplish an awful lot of education.”

Winning a master account was important because such an account is necessary for banks and credit unions to connect to the nation’s financial system.

Also key was Fourth Corner’s strategy change.

The credit union’s goal when it tried to launch in 2014 was to serve marijuana plant-touching businesses like state-licensed dispensaries.

But after being stonewalled by the Kansas City Fed, Fourth Corner said in a lawsuit filed in U.S. District Court that it would serve only ancillary businesses and organizations.

Long way to go

Despite the Kansas City Fed’s favorable decision, it could still be months before Fourth Corner opens for business, according to Goldfogel.

The business still needs to get insurance and raise millions of dollars just to launch.

“The biggest hurdle is securing bank insurance,” Goldfogel said.

He explained that the credit union intends to apply for insurance through the National Credit Union Administration (NCUA), which insures the majority of the nation’s credit unions.

Fourth Corner applied for insurance through the NCUA at the same time it sought a master account but was rejected, Goldfogel said.

Fourth Corner sued the NCUA over the issue, but the case has not moved in a few years, Goldfogel said.

An NCUA spokesman declined to comment, citing the pending litigation.

Goldfogel said he’s now that the Kansas City Fed’s change of heart will make the NCUA more inclined to provide Fourth Corner with insurance.

Hopeful precedent?

Observers were split over whether the Fed’s decision would make it easier for other financial institutions to serve marijuana-related businesses, or encourage them to do so.

“If a bank or a credit union is looking for a signal, this is a positive one,” said Vardaman, executive vice president and general counsel for Hypur, an Arizona-based payment and banking technology company that works with marijuana businesses.

“This is a visible crack in wall surrounding marijuana business banking.”

But Steve Fox – director of VS Strategies, a lobbying and communications firm based in Denver – said it’s unlikely the decision will have a major impact on banks’ willingness to serve cannabis clients.

“As far as serving those businesses goes, financial institutions will continue to look toward the Department of Justice and the Treasury Department, through FinCEN, for their cues,” Fox said.

“While we would like to see continued progress for all cannabis companies, we hope this at least results in financial institutions being more open to banking ancillary companies.”

Julie Hill, a Federal Reserve expert and professor at the University of Alabama School of Law, agreed with Fox.

She pointed out that the Kansas City Fed said that granting Fourth Corner’s master account didn’t constitute a change in policy toward marijuana businesses and wasn’t a “stamp of approval” for state-legal marijuana banking.

At the same time, Hill said, the Federal Reserve has to know that some banks and credit unions are serving marijuana businesses and hasn’t stood in their way.

“They don’t want to say it’s OK,” she said, “but they don’t want to be the ones to drop the hammer.”

The decision could, however, make it easier for other regional Fed banks to grant master accounts to financial institutions with similar aims as Fourth Corner.

“They like to have consistency to the extent that they can,” Hill said.

Conflict roots

Fourth Corner’s conflict with the Kansas City Federal Reserve arose in November 2014, when the credit union received its Colorado state banking charter and applied for a master account.

But the Fed denied the credit union’s request in July 2015, and Fourth Corner responded with a lawsuit.

That suit was dismissed by a District Court in January 2016.

Fourth Corner appealed that ruling, and in June 2017, the U.S. Court of Appeals for the Tenth Circuit in Denver voided the lower court’s decision.

The appeals court essentially ruled:

  • The Kansas City Fed can’t assume Fourth Corner intends to violate federal law by serving marijuana-touching businesses and therefore deny it a master account.
  • The credit union can file a fresh application for a master account.
  • The credit union then decided to take a different approach to its business strategy, and the Kansas City Federal Reserve granted Fourth Corner the coveted master account.

Omar Sacirbey can be reached at [email protected]

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