Appeals Court Overturns Fed's Denial of Colorado's Pot-Friendly Credit Union

Medicine Man, one of the first recreational shops open in Denver.
Medicine Man, one of the first recreational shops open in Denver.
Scott Lentz

A Colorado credit union that's been stymied in its attempts to serve marijuana businesses was given a boost on June 27 when a federal appeals court vacated a previous ruling that had banned the credit union from obtaining an account with the Federal Reserve Bank.

The Fourth Corner Credit Union had announced its plans to serve Colorado's mostly cash-only marijuana industry back in 2014, planning for an opening in 2015. However, a district court ruling prohibited Fourth Corner from receiving a master account – something banks and credit unions need to provide financial services such as credit cards, checking and saving accounts and payroll services – with the Federal Reserve Bank of Kansas City.

This week, the three judges on the 10th Circuit Court of Appeals assigned the case all issued separate opinions in favor of overturning the district court's ruling; they agreed that as long as an applicant meets the Federal Reserve Bank's qualifications, it has no discretion to deny the application. Their decision was sent to the district court with instructions to dismiss the amended complaint without prejudice.

"The district court dismissed the amended complaint, reasoning that Fourth Corner would use the master account to violate federal drug laws. This ruling was erroneous," the 10th Circuit ruling reads.

Despite the victory in court, Fourth Corner won't be serving any of Colorado's dispensaries or any state-licensed marijuana business until federal laws explicitly allow banks to serve them. Fourth Corner CEO Deirdra O'Gorman says her group will continue to work with state regulators and serve cannabis supporters with federally legal funds until that happens.

"It's an exciting development in a very long fight, but there is that caveat on it," she says. "We're definitely not tired of the fight, and we're going to keep moving on. We've been at this for a while now."

An image from the Fourth Corner Credit Union's Facebook page in 2014.EXPAND
An image from the Fourth Corner Credit Union's Facebook page in 2014.
Fourth Corner Credit Union Facebook page

While the court's ruling allows the credit union to apply for a master account with the Federal Reserve Bank, Fourth Corner also has a lawsuit pending against the National Credit Union Administration, disputing the NCUA's rejection of Fourth Corner's application for deposit insurance. That case is currently being heard in the 9th Circuit.

The 10th Circuit victory with give Fourth Corner a clearer path to working with Colorado regulators as it awaits its 9th Circuit ruling, O'Gorman says: "We want some hurdles removed, but we're still working."

Denver regulatory and licensing attorney Tom Downey says he doesn't believe the Federal Reserve Bank will try to fight the appeals court's decision, but adds that it could attempt to get the successful appeal overturned by trying to get the case heard by the United State Supreme Court. It could also ask the 10th Circuit Court to take another look at the ruling in an en banc session, in which all eleven judges on the court give opinions instead of the standard three.

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"This ruling was less about marijuana and more about the Fed's discretion to deny applications," Downey says. "Everyone focuses on the major questions around legalization, when truly, the maturation of the industry and its legal issues are going to be in multiple areas, such as banking, intellectual property and employment."

According to Downey, while it awaits the Fed's decision, Fourth Corner could start serving licensed marijuana businesses if marijuana were federally rescheduled from Schedule I to Schedule II, descheduled to a controlled substance like alcohol, or if federal banking laws were amended to allow banks to provide financial services for marijuana or state-legalized businesses.

"Nothing ever moves on a steady ramp with marijuana; it's steps," he says. "It'll be nothing, and nothing, and nothing – then, boom!"


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