A federal appellate panel this week breathed some life into a Denver-based credit union’s efforts to open its doors, one day, to marijuana-related businesses.
The U.S. Court of Appeals for the Tenth Circuit vacated a Colorado district court’s January 2016 ruling that had tossed out Fourth Corner Credit Union’s lawsuit—with prejudice—challenging the Federal Reserve Bank’s denial of its request for a master account. Colorado chartered Fourth Corner Credit Union, but the federal account is needed for basic banking transactions.
Fourth Corner’s directors had hoped to launch a credit union to service Colorado’s legalized recreational marijuana industry. Major banks shun marijuana transactions because federal law still criminalizes the drug. U.S. District Judge R. Brooke Jackson of the District of Colorado said federal approval of Fourth Corner’s account would facilitate criminal activity.
The Tenth Circuit’s dense, 64-page decision, based on three distinct opinions from the panel judges, vacated the district court’s order. The case will return to Jackson with instructions to dismiss it without prejudice.
As Colorado wrestles with how to bank marijuana businesses, California’s treasurer has convened a working group to tackle the same issue before the Golden State launches commercial marijuana permitting on Jan. 1. Treasurer John Chiang has asked the panel of bankers, marijuana representatives and government officials to recommend solutions by the end of the year.
We asked three attorneys for their thoughts on the Colorado appeals court opinion. Here are some of their takeaways.
The ruling was a victory for the credit union—sort of.
The credit union’s lawsuit is alive. For now.
“When you start with the district court opinion we appealed, we were dead in the water,” said Mark Mason, Fourth Corner’s attorney. “We would have loved to have seen ‘reverse’ but ‘vacate’ is good too.”
The plan now is for Fourth Corner to re-apply to the Federal Reserve Bank of Kansas City for a master account. If the application is denied, expect to see the credit union back in court, said Mason, of The Mason Law Firm in Mount Pleasant, South Carolina.
Mason said he takes encouragement from Tenth Circuit Judge Robert Bacharach’s assertion that the district court erred by not taking credit union leaders at their word that they would abide by federal law.
“Had one other judge joined in that opinion we’d be doing backflips off the balcony,” Mason said.
That’s the glass-half-full analysis, said Robert McVay of Harris Bricken in Seattle.
“The negative answer is that none of the judges indicated any sympathy for Fourth Corner’s original argument that the fed must give them a master account,” McVay said.
Fourth Corner’s complaint, in its current form, will not legitimize banking for marijuana businesses.
During litigation, Fourth Corner submitted an amended business plan that said it would only serve supporters of legalized cannabis, not commercial operations, until the federal government removes restrictions on marijuana-related banking.
“It takes years to start a financial institution,” Mason said. “What we’re trying to do is just get set up so on day one [of federal banking approval] they’re ready to operate.”
The lawsuit’s focus is now on whether the Federal Reserve has the legal discretion to reject a properly chartered bank’s application for a master account.
“That’s good news if you are Fourth Corner and want to open and provide banking services at all, but it doesn’t help marijuana businesses,” McVay, the Seattle lawyer, said. “If they explicitly state that they won’t provide banking services until doing so is legal, they won’t be entering that market for years, and they’ll be going up against every other big bank out there. When it is legal, everyone will do it.”
Stanley Jutkowitz, senior counsel at Seyfarth Shaw’s Washington office, said the appellate ruling “is not a big deal” in terms of clarifying the state-federal conflict over marijuana banking.
“They [Fourth Corner] say they’re going to serve people who support the legalization of marijuana. Well so what?” Jutkowitz said. “You could walk into a Bank of America and they might bank you for that. It’s just another advocacy group.”
The marijuana banking dilemma will not be solved any time soon.
In 2014, the U.S. Department of Treasury’s Financial Crimes Enforcement Network, or FinCEN, issued guidance saying banks could provide accounts to marijuana-related businesses in legalized states if they and their customers met a long list of requirements. The advisory has not unleashed banking services for the cannabis industry.
“Marijuana is still illegal, and the FinCEN and Justice Department guidance were just that—guidance,” Jutkowitz said. “They weren’t legally binding precedent.”
Some smaller financial institutions do handle marijuana-related customers openly. Others do so quietly, even going so far as requiring their customers to agree not to disclose where they do their banking, Jutkowitz said.
“Some of the banks are really acting as vaults,” he said. “They’re not providing a full array of banking services. They’re just basically taking deposits and holding the money.”
Congressional representatives from marijuana-legal states introduced legislation this spring that would create protections for financial institutions doing business with legitimate commercial marijuana operations. But efforts to aid legal recreational marijuana businesses have not typically fared well in Congress.
So the Fourth Corner Credit Union waits, litigates a more nuanced battle over the Federal Reserve’s authority and plans to serve cannabis supporters, not businesses.
“That’s all we can be right now,” Mason said. “We cannot be more.”