California Credit Union Forms New CUSO Cannabis With Fintech & Trust Bank
California Credit Union, FinTech and Trust Bank Launch New CUSO That Will Allow Credit Unions and Community Banks to Offer Banking Services to Cannabis Companies Without Making the Investments in People and Technology to Meet Requirements strict state and federal government compliance.
The CUSO, HigherGrowth LLC was developed over the past two years by the $ 97.4 million North Bay Credit Union in Santa Rosa, Calif., Which has served California cannabis companies since 2017, and its partners Austin Capital Trust. Company in Henderson, Nev. ., and MRBD, a Silicon Valley fintech.
Austin’s platform provides efficient access to financial services, digital integration and custody, while MRBD’s API-driven technology platform includes AML, KYC and FinCEN compliance modules; automated workflows; payment solutions and integrations with state regulators for ongoing monitoring of cannabis operators, according to HG. In addition to these technology platforms, CUSO’s operations will include North Bay’s compliance staff of 18 full-time employees who will be responsible for ensuring that federal and state compliance requirements are met on behalf of financial institutions.
âWe have been banking cannabis since 2017 and have developed a fairly strong compliance infrastructure with people and technology,â said Chris Call, President and CEO of North Bay. âWe have the ability to really expand what we do beyond our geographic footprint. And it’s just a matter of having the right vehicle to be able to offer these services to other institutions looking to deposit cannabis. And that’s why we formed HigherGrowth to offer the infrastructure and expertise that we have developed over the past four years.
Earlier this year, North Bay became the exclusive and privileged banking partner of the California Cannabis Industry Association, representing 400 marijuana companies and their 15,000 employees.
Carole McCormick, who has served as North Bay’s Chief Compliance Officer and Cannabis Banker since 2018, is President of the new company.
In 2017, around 100 credit unions and nearly 300 banks offered banking services to marijuana-related businesses, according to FinCEN’s Marijuana Banks Quarterly Update Report. Those numbers, based on suspicious activity reports filed with FinCEN, rose to 174 for credit unions and 510 for banks by the end of the second quarter of this year, according to the FinCEN report.
Only a small percentage of credit unions and banks serve cannabis companies, in part because marijuana is still illegal under federal law. However, in most states, marijuana is legal for medical or recreational use, and in some states, pot has been legalized for medical and recreational use.
BDSA, a Colorado-based marijuana research company, said cannabis sales reached $ 17.5 billion in 2020, up from $ 12.1 billion in 2019. BDSA predicts that sales of pot aux United States is expected to generate $ 41.3 billion in revenue by 2026, an annual growth rate of 15%. Illinois, which launched adult use last year, saw the biggest gain in dollars, increasing to $ 784 million. Several other markets have experienced major expansion, the top four being California (+ $ 586 million), Florida (+ $ 473 million), Colorado (+ $ 451 million) and Oklahoma (+ $ 400 million). dollars), according to BDSA.
Additionally, a 2020 Gallup poll showed that 68% of Americans support federal legalization of marijuana.
Appeal noted in states where marijuana is legal, the federal government has taken a hands-off approach, although it may attract further scrutiny of the NCUA’s credit union operations.
âThat’s why we are forming CUSO – to take the pressure off other credit unions from this review because all of this review would be directed to CUSO,â Call said. “They [the NCUA] I just want to know that CUSO is profitable and operates in a safe and healthy manner, but that they do not have the same regulatory power over the affairs of CUSO as they do over credit unions.
Despite the public acceptance of cannabis, the industry’s growth in revenue and its need for banking services, McCormick pointed out that credit unions and community banks have been reluctant to adopt banking programs for cannabis because the investing in a compliance infrastructure would require the addition of specialized personnel, equipment and software.
“With HigherGrowth, this infrastructure can be outsourced to specialists while allowing institutions to benefit from increased deposits and loans,” she said.
The HG platform will provide enhanced processing and due diligence for cannabis account requests, account integration, transaction monitoring, armored vehicle cash withdrawal services, and regulatory reporting filings. Financial institutions will be able to monitor their cannabis accounts with the HG platform, and MRB operators will use the platform to manage all of their financial transactions, from scheduling wire transfers to paying bills online.
HG’s fees offer “cafeteria-style” options that would allow credit unions to choose the services they want.
“Institutions may want us to simply do [cannabis client] integration, which would represent a single cost. And then others might want us to handle the entire account relationship, which would be an additional cost, âCall said. âBut we’re setting it to allow credit unions to mark up the fees they charge and pass them on to the individual cannabis operator. So there will always be a margin that they can earn as they spread. “
The new CUSO also said it plans to expand its services to include business loans, payroll services, 401 (k) and insurance products.
HG plans to set up an exchange or marketplace that would allow cannabis operators to post loan requests that would entice multiple lenders to bid for these loans.
More information on the HG platform is available on its website.