Treated ‘Like a Coke Dealer’: Cannabis Workers Lose Out On Mortgages, Loans

In 2009, the U.S. Department of Justice, responding to states that were legalizing medical marijuana — Michigan legalized medical marijuana in 2008 but didn’t prop up a recreational industry until 2019 — sent a memo noting that marijuana remained an illegal narcotic from the federal perspective. But the feds targeting cancer patients and caregivers, those who grew and supplied marijuana to those patients, was “likely not an efficient use of federal resources.”

As more and more states began the commercial sales of marijuana — Colorado and Washington state began selling recreational marijuana in 2014 —the Federal Financial Crimes Enforcement Network (FinCEN) issued a memo clarifying how banks could operate with marijuana businesses.

The memo created a set of guidelines so banks could remain in compliance that involved arduous record keeping, including filing Suspicious Activity Reports for every marijuana-related transaction. However, the feds would remain diligent, according to the memo, in prosecuting money laundering and fraud claims if any bank failed to comply.

In Michigan, a handful of local credit unions and banks saw an opportunity in banking marijuana business, believing they were able to handle the labor-intensive compliance reporting for a small stable of marijuana clients.

Mason-based Dart Bank and Fraser-based Live Life Federal Credit Union were early adopters in the state. Flagstar Bank is also known to bank cannabis here.

Live Life Federal Credit Union, which built a growing business banking marijuana by 2019, was slapped with a cease-and-desist order in February 2021, the first known federal crackdown on marijuana banking. The U.S. National Credit Union Administration issued the order alleging Live Life failed to comply with reporting procedures. Life Live was barred from opening new accounts until April 2021 and faced no other repercussions.

Dart Bank did not respond to inquiries about its marijuana services. Flagstar Bank declined to comment.

“There is a robust number of banks and credit unions across the state that are banking cannabis and cannabis businesses,” said Patricia Herndon, executive vice president of government affairs at the Michigan Bankers Association. “Whether an employee or a business, those accounts can still be considered a money launderer. There can be repercussions there. But there are banks that have made the investment to have compliance in place and they are the best matches for these employees.”

Large national banks have avoided marijuana banking because the size of their operations likely makes rigorous compliance much more difficult.

For mortgages, they are split into two camps — Freddie Mac and Fannie Mae, federally-backed home mortgage companies that guarantee mortgages issued through lenders. Freddie Mac primarily works with large banks and Fannie Mae with smaller institutions. Freddie Mac will not back a mortgage involving cannabis employees, but Fannie Mae will, said Kelli Peterson, a loan originator for PrimeLending in Portage. Owners of marijuana companies are completely barred from mortgages from both institutions, Peterson said. She helped Yerock quickly secure a mortgage when Gateway balked at the loan.

Cutting the mortgage industry in half is costly for employees, Peterson said. For instance, cannabis employees can’t access Freddie Mac’s Home Possible program, which provides those with lower incomes a mortgage with a low-down payment and lower fees.

“Because Freddie won’t allow a loan to a cannabis employee, 50 percent of the industry is cut off from them,” Peterson said. “Home Possible is off the table. These people need homes too.”