Why credit unions should offer cannabis banking

What

Green Check Verified is a Florida-based solution enabling financial institutions to develop and scale cannabis banking programs. Founded in 2017, Green Check Verified has raised more than $20M in venture funding, including a $6M Series A from Mendon Venture Partners in February 2023.

Why

According to Paul Dunford, Green Check Verified’s Co-Founder and VP of Knowledge, cannabis banking aligns with the mission of credit unions by “serving the underserved” and by being hyperlocal, especially since many entrepreneurs entering cannabis come from historically marginalized and underbanked communities.

“Credit unions are uniquely positioned to be able to take that very local look, and really understand the folks that are involved,” he added.

Credit unions have a unique structural and regulatory opportunity that larger financial institutions do not. Given their relatively small size, many credit unions have less red tape and fewer approvals needed to launch cannabis banking products. The NCUA’s former Chairman, Rodney Hood, has also encouraged credit unions to offer cannabis banking. Complemented by FinCEN guidance, credit unions have a “leg up on anybody who's regulated by one of the banking regulators who have been very quiet on the subject,” Dunford said.

This opportunity has a limited time window, Dunford argues. “This is a once in a lifetime opportunity,” he said. If passed, the SAFE Banking Act may encourage some bigger financial institutions to enter the space.

“If you’re a credit union, this is your time to engage the industry; you have the upper hand, and the moment the federal landscape changes, you may no longer be in that position to be the first mover,” he said. “Time is of the essence.”

How

Much of Green Check Verified’s regulatory and growth strategy comes in the form of education. By explaining the legal status of cannabis banking, and by having credit unions talk to each other, the startup—which serves more than 125 financial institutions, of which approximately half are credit unions—hopes to demonstrate to credit unions that they have a viable opportunity to scale and serve a nascent industry.

However, some credit unions interested in cannabis banking are constrained by their field of membership. CUs whose charters limit them to serve a few counties often struggle to justify launching cannabis banking services—especially if no cannabis-focused companies operate within those geographies. Dunford said some credit unions are now altering their charters in order to overcome that hurdle.

Some online-banking vendors provide another challenge by refusing to serve financial institutions’ cannabis clients, which limits the value add of launching a cannabis banking product. Green Check Verified said the number of vendors imposing these limitations is less than it used to be, though it still adds friction to conversion and servicing strategies.

Finally, most of its political efforts have involved working with bankers’ associations, credit union associations, and states—but Green Check Verified is also beginning to focus more intentionally at a federal level to educate and partner with lawmakers. While the SAFE Banking Act would formalize protections for cannabis banking, it doesn’t affect the federal status of marijuana. Marijuana’s status as a Schedule 1 controlled substance effectively imposes a 70% tax rate on marijuana businesses, versus around 30% for other businesses.

“By rescheduling, you could remove that huge, huge burden on the cannabis industry,” Dunford said.