GFA Federal Credit Union will become the first financial institution in Massachusetts and possibly the US, to bank the nascent recreational pot industry.
The $506 million-asset credit union will start offering business banking services to recreational pot companies in the state on Oct. 1. Massachusetts legalized marijuana for recreational sale on July 1.
Meanwhile, a proposal in Congress would explicitly say that marijuana proceeds wouldn’t be considered illegal in states where the drug has been legalized. And California’s legislature just delayed approval of banking for pot companies, meaning it will be a cash industry in the Sunshine State for at least another year.
“When the Commonwealth legalized medicinal and recreational cannabis, we knew the multimillions generated by this fast-growing industry would soon become a safety issue, if unbanked,” GFA CEO Tina Sbrega said in a press release Friday.
Until now, no banks or credit unions in Massachusetts had shown much willingness to bank recreational pot businesses, though Century Bank in Medford has been known to bank medicinal marijuana businesses.
Banks and credit unions, which are federally insured and must answer to federal regulators, are understandably wary of getting into that line of business. Though it has been legalized to some extent in 30 states and the District of Columbia, the federal government still classifies marijuana as a schedule 1 drug, alongside heroin and LSD.
Attorney General Jeff Sessions also spoiled some of the risk appetite for legal pot this year, when he rescinded an Obama-era memo advising federal prosecutors not to prioritize cases against marijuana businesses complying with state law.
Yet policymakers in those states where it has been legalized have a public safety interest in seeing that recreational pot businesses are able to obtain bank accounts. Cash-only businesses are not simply inconvenienced when paying taxes and managing payroll; they are also a prime target for criminals who know that employees are dealing with duffel bags full of cash.
In February, Steve Hoffman, chairman of the state’s Cannabis Control Commission, suggested that if no financial institutions decided to serve the industry, then the state could create a public bank to do so. California’s state treasurer, John Chiang, made a similar suggestion last year, and lawmakers there passed a bill in June that would authorize the state to create a public bank for that purpose.
For now, GFA, which is based in Gardner, Mass., will not lend to the recreational marijuana industry, but will offer basic business banking serviceslike cash management and payroll, according to The Boston Globe.
GFA has also partnered with Safe Harbor Services, a wholly-owned affiliate of Partner Colorado Credit Union. Safe Harbor conducts due diligence on those business clients to ensure they follow Financial Crimes Enforcement Network guidelines before matching them with a financial institution, according to its website.
“Our board of directors recognizes the need to provide banking services for the safety of our citizens in reducing the ‘cash on the streets,’ and I applaud them for their vision and commitment to providing public safety,” Sbrega said.