North Bay Credit Union says it's serving cannabis customers

About a month after California declared a much-sought-after public bank for the cannabis industry too risky, North Bay Credit Union announced Monday it has been handling related financial transactions for about a year.

The decision to work with cannabis growers and suppliers now that California voters approved recreational use of the drug in 2016 carries a risk of federal regulation and potential legal action, credit union CEO Chris Call said Monday.

“I am concerned that the government is going to take a turn and start bearing down on financial institutions that are trying to create solutions for this industry,” Call said.

Recreational use in the state became legal a year ago, but cannabis is still outlawed at the federal level. Most financial institutions have passed on doing business with cannabis companies, fearing legal action under money laundering statutes, among other penalties.

Call said his credit union, which has a new branch location in Sonoma Valley, could face prosecution from the U.S. Department of Justice for facilitating an illegal business as well as investigation from the U.S. Department of the Treasury’s Financial Crimes Enforcement Network.

The Department of Justice did not respond to an emailed request for comment.

The dangers of operating a cash-only business were brought sharply into focus after the death of a credit union member, Call said.

North Bay Credit Union had been handling cannabis transactions for roughly a year, Call said, but was partly galvanized to do so after one of their members in the industry was murdered in a home invasion after false word got out he had cash from a cannabis grow in his home.

“It highlighted the problem that when people can’t put their money in a bank, there’s all kinds of issues that result from that,” Call said.

Call declined to name specific businesses the credit union has worked with but said they included enterprises throughout Sonoma County and the North Bay.

He did not want to divulge the maximum amount a cannabis business could deposit with his company but said as a small credit union they limited how much they could accept from any one entity to manage their capital ratios.

“The more deposits we take in, the lower our capital ratio becomes,” Call noted.

Call said his credit union modeled how they work with cannabis companies on Partner Colorado Credit Union. Voters legalized recreational use of the drug in Colorado in 2012.

North Bay Credit Union, formerly known as Sonoma County Grange Credit Union, also participated in a monthly nationwide roundtable of financial institutions offering services to the industry, mostly credits unions and some banks, sharing information about the business across states where it is legal, Call said.

While most federally regulated financial institutions are reluctant to openly do business with the cannabis industry, there have been suggestions that a public bank, owned by public officials and under state government control, be created to handle the business.

The cannabis industry statewide has been estimated to generate as much as $5 billion a year.

But that idea of a public bank to handle the cash generated by the growing industry was deemed to have almost insurmountable risks by the Cannabis Banking Working Group on Dec. 27, chaired by former California State Treasurer John Chiang, the Business Journal previously reported.

A feasibility report put together by the group said it was highly unlikely federal regulators would issue the master account for a public bank to operate.