Sundie Seefried
Seefried became the CEO of a new cannabis banking company — Safe Harbor Financial — that is essentially a fully owned credit union service organization of Partner Colorado.
The cannabis program was simply taking too much time and attention from the operations of the $564 million-asset credit union, so it decided to separate all things cannabis-related into its own division, she said.
Safe Harbor is expected to have about 35 employees by year-end, she said.
According to the Financial Crimes Enforcement Network, 169 credit unions and 515 banks were serving the marijuana industry as of Dec. 31.
In a recent interview, Seefried discussed Safe Harbor's interest in cryptocurrency; the likelihood of passage of the federal SAFE Banking Act that would make it easier for financial institutions to serve legal pot businesses; and the arduous challenges of Bank Secrecy Act compliance. Responses have been edited for length and clarity.
Why was this the right time for you to move on from Partner Colorado?
SUNDIE SEEFRIED: I promised the board I would see this through until I was certain they had sufficient risk mitigation for the cannabis banking program. So I think, above all things, it's about finishing the project and segregating the risk to completion for the board.
You have said that Safe Harbor might bank cryptocurrency and mushroom firms, too. How does that play with cannabis banking?
In terms of cryptocurrency, it's like cannabis was seven or eight years ago — a lot of our members and cannabis clients are using it but not necessarily with Partner Colorado. Because transparency is of the utmost importance for the [Bank Secrecy Act], it behooves us to watch and monitor what our clients are doing. So that's how crypto fits into it.
It's also a good move for Partner, so it's kind of a joint project between the entities at this point. Because, again, members in this last year, due to COVID, have really picked up on digital currency, and we don't want to be left behind on that.
As far as psilocybins, or mushrooms, the cannabis industry is very focused on its business line and business model in terms of expansion. And because they are operating in such a highly regulated industry for cannabis, many of them are already asking us whether or not we will bank their mushroom divisions. So we are preparing for the model expansion of our present clients.
The SAFE Banking Act
Well I think [the odds] are better with the change in administration than they were in the past. I think there's a lot of holdup with one party versus the other, so I think there could be some pushback. It's been advocated for so many years that's it's got a pretty good chance of passing, in my opinion. The thing about the SAFE Banking Act, though, is that it won't eliminate the biggest risk of getting into the cannabis business. And that's the risk of the BSA. It will only eliminate the risk of prosecution — the legal aspect of the board and officers being prosecuted just because they bank cannabis.
What's the solution to the BSA issue?
I don't think there is a solution because, first and foremost, as financial institutions, our obligation to the federal government is to protect the system from having illicit funds enter the market. And if you liken this to money service businesses, the compliance level remains very high on those types of businesses. So the question will be how many people actually want to move into cannabis if they're not already banking money-service businesses.
One of the potential pitfalls for the bill in the Senate could be that some senators are looking for more broad cannabis reform. What's your take on that?
I absolutely think it's essential that other things are considered in this bill to include the decriminalization and social-equity aspect in terms of the number of people who have been locked up in prison due to cannabis. I think it's a good move to try to include other cannabis-related items in it, so I think expanding [the bill] is not a bad idea. But I do believe that access to banking is of the upmost importance to the industry now for transparency and accountability.
The number of states approving marijuana in one form or another is up, but the number of institutions banking that industry is not. Why?
I still think it's the legal risk of potential prosecution. But, at the same time, what you do see are more reports being filed, which means those financial institutions that have been dabbling in it or testing the market to see if they have the resources to dedicate to the process are actually expanding their programs. So I believe you're seeing an expansion of existing programs even though you're not seeing new programs being offered.
You would prefer more players in the space, correct?
I think that access to banking across the country is definitely necessary for the [cannabis] industry.
How has the pandemic affected the willingness of other financial institutions to consider cannabis banking?
Cannabis was deemed an essential business in most of the states in which it is legal. So I think a lot of financial institutions were looking to see how it performed. And I think cannabis performed like some of the other recession-resilient industries like tobacco and alcohol. Cannabis proved itself to be right up there. So I think any financial institution looking at it will take that into consideration. Also, because of COVID, the states are looking for tax dollars, and I think you're going to see a rash of legalizations in several other states because of it. And one is going to feed the other.
What has been the pandemic’s biggest impact in the past year to those financial institutions that bank cannabis versus more traditional institutions?
If you look at our financial position and the amount of cannabis we're banking you would see that our return on assets held steady and did really well during COVID — even though we lost a lot of income in the payment processing and other areas. So I think people are going to recognize that.
One of the things we often hear in favor of banks and credit unions banking cannabis is that without them, there would be massive amounts of cash floating in the community, which can attract criminals. Is that argument valid?
It's absolutely true. It doesn't only have the impact of accountability and transparency so that taxes are being paid. It also separates the good actors from the bad actors. Every good actor wants to have a bank account and pay for those accounts. Every bad actor is probably avoiding the banking transparency. So the question in the end is, why don't you have a bank account when there is sufficient banking available?
