J. Mark McWatters said he's worried about large amounts of cashon the street – sales proceeds from recreational marijuanabusinesses in states where cannabis is legal. And the NCUA boardmember said he would like financial institutions, including creditunions, to do something about it.

McWatters has spoken out recently about finding ways for creditunions to serve the fledgling pot industry by helping thosebusinesses become active members of the financial services system.But such service opportunities have generated mixed reactions amongcredit unions in Alaska, Colorado, Oregon and Washington, whererecreational marijuana possession and use is now legal.

McWatters recently took his message public, discussing with credit unions attending the mid-April MountainWest Credit Union Association meeting in Denver reasons for servingcannabis businesses. Cultural issues regarding what is stillconsidered a Schedule 1 drug under federal law aside, McWatters wasconcerned with the public safety issues and tax base erosionfostered by financial institutions that aren't high on meeting theneeds of this emerging constituency.

“Do you realize how much cash is on the streets and is beingferried in armored vehicles to secret warehouses?” McWatters askedin a private interview. “Cash in the streets attracts organizedcrime, and cannabis businesses want to be part of the financialservices system.”

In states where recreational use is legal, sales of marijuana isor soon will be controlled by the states' liquor control boards.Both Colorado and Washington currently permit cannabis sales invarious forms, and Alaska and Oregon will likely follow suit earlynext year.

However, with the exception of Washington, credit unions and banks in the other states havenot rushed to fill the service gap. This has led to McWatters'cash-on-the-street concerns, as well as situations in whichproceeds from marijuana sales are finding their way into thefinancial services through some questionable methods.

“I have been told in no uncertain terms that cannabis cash isworking its way into the financial services system through depositsmade by dummy corporations,” McWatters said. “This a situation thatcauses concern both for the NCUA and the FDIC because it raisesBank Secrecy Act questions.”

Credit unions and banks have been issued clear guidance for serving cannabis businesses by the FinancialCrimes Enforcement Network (FinCEN) and the Cole memo, issued byformer U.S. Department of Justice Deputy Attorney General James M.Cole on April 29, 2013. The memo offered specific directions tofederal prosecutors concerning marijuana law enforcement in allU.S. states and serves as guidelines for financial institutionsthat serve these businesses.

Read more: Complying with the Cole memo will becostly for state regulators and financial institutions…

However, compliance with the Cole memo and other state andfederal requirements require significant and sometimes costly duediligence both by state regulating bodies and any financialinstitutions that work with cannabis enterprises. In addition, theappointment of U.S. attorney general Loretta Lynch, who holds amuch stronger anti-marijuana stance than her predecessor EricHolder, may change the federal government's tolerance levels forcasual marijuana use.

For credit unions considering serving marijuana-relatedbusinesses, it generally comes down to a cost-benefit analysis,McWatters said. Lack of critical mass when it comes to both thenumber and size of the marijuana businesses served may make servicetoo costly, rendering the question moot for many credit unions.

“If you have a credit union with a substantial part of thisbusiness, you can probably afford to hire the lawyers andaccountants to comply with the Cole memo and still sleep well atnight with the comfort that you won't be indicted,” McWatterssaid.

The NCUA's role in these cases is to continue serving asgatekeepers to make sure that all appropriate federal laws havebeen observed and credit unions, whether they servemarijuana-related businesses or not, are operating in a safe, soundmanner, McWatters said. To date, the board member has heard nothingfrom NCUA Chairman Debbie Matz about further discussing or revisingthe NCUA's role when it comes to this question.

McWatters has no personal opinion about the legalization ofmarijuana at either the state or federal level. But now that issueis out in the open, the board member would like to see more thoughtgiven to what legalization means from a social and financialperspective.

“I think people don't think through this subject and, given thehistory of cannabis in this country, they stop at the philosophicallevel,” McWatters said. “My suggestion is, let's go a step beyondthat level, and that's where Colorado is now.”

Potential upcoming referenda in Ohio could change the way thatstate views both medical and recreational marijuana usage. Althoughnot scheduled for discussion or introduction before 2016, addingOhio to the list of legal pot-smoking will likely increase thedialogue and expand credit unions' existing concerns in whether ornot to serve these member groups, McWatters said.

“One solution for the industry that does not require any changesby Congress or FinCEN may be for a subset of credit unions andbanks or a CUSO that specializes in this area to operate withgreater economies of scale and bring more of these businesses intothe financial service system,” McWatters said. “But you willabsolutely have to comply with the laws; otherwise, it will ruinyour whole day.”