Agricultural Focus Leads CU to Cannabis Banking, Then a CUSO

By John San Filippo


For one northern California credit union with a 70-year history of serving the agricultural community, cannabis banking seemed like a natural fit.


“We were founded originally in 1948 as an agriculturally based credit union,” Chris Call, CEO of the $104 million, 2,700 member Santa Rosa, Calif.-based North Bay Credit Union told Finopotamus. “We were established by a bunch of farmers and over the years have developed an affinity and a relationship with the agricultural community. So in 2017, when California legalized the recreational use of marijuana, we saw that there was going to be a great need in our community for banking services for cannabis growers, of which there are many here in our area.”

Chris Call

Serving the Entire Community


Call continued, “Because we had that sort of agricultural connection and they were part of the agricultural community, we felt like that was a niche that we could serve. I was primarily driven by the need for providing a safe outlet for all this cash that was traversing our community.” He said that even before legalization, cannabis money was a problem, adding that growers would often carry cash in suitcases or trunks of cars just to pay their bills.


“We felt like as a community-based credit union, we wanted to help our community in that way by providing a safe outlet for all this cash,” said Call.


But what about pushback from the board?


“My board was very supportive,” said Call. “There was some concern that we were going to get some blowback from our existing members or from others who were concerned about us supporting a federally illegal activity, but actually since we started the program, we’ve received nothing but encouragement and support from all corners of the community. It’s because we’re doing something that is really benefiting the safety and wellbeing of the entire community.”


A CUSO Is Born


North Bay CU entered cannabis banking as soon as recreational use was legalized in 2017. However, in just the last year, Call and his leadership team decided that it made sense to leverage all they’ve learned and all they’ve built to benefit other credit unions interested in heading down a similar path.


“We spent all this time and effort and money building out an infrastructure to compliantly take cannabis money,” said Call. “Why not leverage that knowledge and expertise and bring it forth in a CUSO that can benefit other credit unions that are considering taking on the same challenge?” Thus, the credit union formed a CUSO called HigherGrowth LLC.


The primary focus of the CUSO is compliance, an undertaking that has been significantly streamlined by the effective use of technology. “We’ve worked out a technology platform now that that allows us to scale our program rather significantly without adding a lot of personnel,” said Call.


In the Weeds


Call then explained the services provided by the CUSO.


“With cannabis banking, there’s a rather significant amount of compliance and due diligence work that has to go into, first of all, vetting and onboarding applicants,” said Call. “We have to go through all the licensing checks. We have to do background checks. We have to do monitoring of any social media accounts and negative news feeds – that kind of thing.”


Once the CUSO has established that the applicant is a legitimate, viable, compliant business, they onboarded as a business member of the credit union. “Then every deposit they make has to be vetted as a legal transaction,” Call noted. “We have to ensure that sales are being conducted with a compliant license; that the receiving party is a valid, compliant customer; and that any expenditures are within the realm of our expectations of what a legitimate business would be doing.”


According to Call, regulations and taxation can make it difficult for compliant cannabis businesses to compete with black market operators. He said that sometimes the temptation is too great and otherwise compliant business conduct non-compliant transactions.


“We have to be very cognizant of that as a credit union, to make sure that we're not processing any transactions that are not fully licensed and state-sanctioned as approved,” said Call. “Otherwise, we could be accused of money laundering.”


A Technology Solution


Because cannabis sales are still illegal at the federal level, credit card carriers will not allow cannabis transactions to use their payment rails. This means that cannabis sales are typically limited to all-cash transactions, increasing the risk for everyone involved. In addition to compliance services, HigherGrowth offers a technology platform that helps cannabis businesses more safely manage the cash they do have, as well as providing an electronic payment option for customers.


“We've taken it one step beyond just compliance in that we've created a payment platform that cannabis operators can use as a fully automated banking system to do online bill payments, initiate wire transfers, schedule armored car pickups, and transfer funds between different bank accounts.”


As for customer payments, HigherGround offers a point-of-sale option that relies on ACH.


“We can’t use the Visa or MasterCard rails, but we can do ACH transactions that we process internally,” said Call. “It’s very similar to what you would do if you were paying via PayPal. The customer enters their bank account information. Then the ‘bud tender’ inputs the amount of the sale and hits the button to execute the transaction. We have a process that verifies that funds are available in the account.” He said that in the end, the purchase is processed just like any other ACH transaction, adding that the business can securely retain the customer’s ACH information, so it doesn’t need to be rekeyed for each transaction.


The CUSO Advantage


As the cannabis business becomes more mainstream, Call expects interest by other credit unions to increase. However, creating such a program from scratch can be very cost prohibitive.


“The cost to build out a compliant cannabis banking operation for a credit union is significant and it requires a lot of expertise,” concluded Call. “What we're doing is providing a turnkey operation. If a credit union wants to start taking cannabis deposits, it could enlist HigherGrowth and begin taking those deposits almost immediately, knowing they have the assurance that their operation is being compliantly vetted in the process.”

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