Puerto Rico’s largest provider of banking services to the island’s medical cannabis industry is looking for a federal court that would allow it to drop cannabis clients for shady electronic payment practices.
TuCoop, a San Juan-based Savings and Credit Cooperative organized under Puerto Rico’s banking laws, sued one of its clients, 3G Green Gold Group LLC in the U.S. District Court of Puerto Rico on June 7, claiming that the company disguised numerous financial transactions from its cannabis business as non-cannabis related deposits and transfers.
The lawsuit comes months after TuCoop publicly called on its clients to stop using electronic payment systems for cannabis sales, only to face push back from Miembros de la Industría del Cannabis Medicinal (MICaM), which is the largest medical cannabis industry association in Puerto Rico. The ongoing conflict underscores the challenges dispensaries across the United States face in attempting to allow electronic payments for cannabis products.
3G Green Gold Group did not respond to voicemails and emailed requests for comment. The company operates seven medical cannabis dispensaries in Puerto Rico under active licenses from the territory’s Department of Health under the “Bwell” trade name, according to CRB Monitor’s cannabis license database.
“The law says that all money from cannabis has to go through a valid and in-good-standing credit union. In Puerto Rico, we only have one credit union that qualifies,” said Goodwin Aldarondo, CEO of Puerto Rico Legal Marijuana, a cannabis consulting firm.
Aldarondo is not directly involved with the lawsuit, but he frequently works with MICaM.
TuCoop is the largest credit co-op, or “cooperativa” in the territory of Puerto Rico. Cooperativas are state-regulated and insured by the Public Corporation for the Supervision and Insurance of Cooperatives, which offers share insurance up to $250,000, like NCUA and FDIC. As of late 2022, there were 106 cooperativas serving more than 1.1 million members, and holding $10.2 billion in community-owned assets, representing the third-largest financial entity on the island.
Cannabis transactions allegedly funneled to Caribbean bank account
Puerto Rico legalized medical cannabis in 2015. Since then, the industry has exploded to include 275 dispensaries as of February, one for every 12,000 residents. Last year, MICaM started lobbying for a licensing freeze because the market had become saturated. At the same time, operators would like to be able to accept more than strictly cash payments, according to Aldarondo.
Electronic transactions for cannabis are not allowed on the island as a result of the Federal Reserve Bank of New York’s strict prohibition on the use of its Fedwire service for cannabis in Puerto Rico. TuCoop operates within the FRBNY’s district, which also includes New York, New Jersey, Connecticut and the Virgin Islands. TuCoop does not allow electronic payments for cannabis, due to FRBNY’s restriction.
“The medical marijuana industry is looking for ways to accept electronic payments,” he said. “There are a lot of other credit unions attempting to provide service, but it’s very uphill. They are trying to look for solutions because we are hurting.”
In the June 7 filing, the credit co-op claimed that 3G Green Gold Group was funneling cannabis-related deposits and transfers through a network of Florida- and Colorado-based financial institutions and trusts that ultimately terminated in a bank account of a Swedish company on the Caribbean island of Nevis.
“TuCoop became aware that 3G created, implemented, and is operating by itself or with the help of third parties, a scheme to evade the prohibition of the FRBNY and utilize the Fedwire to transfer marijuana proceeds to the State of Colorado and other jurisdictions. Such scheme entails disguising purchases of medical marijuana in BWell dispensaries as ordinary non-MRB (Marijuana Related Business) commercial transactions, so the impacted financial institution in Puerto Rico cannot recognize the real source and/or purpose of the payment,” said the six-page complaint.
The U.S. Treasury’s Financial Crimes Enforcement Network issued guidance for cannabis states in 2014, in time for the first legal adult-use state markets to come online. While acknowledging that cannabis remains illegal on the federal level, the guidance outlined a series of red flags for financial institutions to watch for when serving cannabis-related clients. These include ensuring that funds from cannabis sales are not being diverted to criminal entities or illicit activity.
“FinCEN has clearly identified that kind of conduct as red flags that should alert to possible illegal activity. It also serves as basis for the termination of the relationship between the MRB and the financial institution,” said the lawsuit.
TuCoop also said that it intends to close 3G’s account. Through the lawsuit, the credit union hopes to receive a court order allowing it to essentially terminate its contract with 3G and close the account.
“Because 3G’s payment scheme utilizing the Fedwire to transfer funds from the MRB out of Puerto Rico presents a ‘red flag’ under FinCen’s guidance, TuCoop maintains that it has all legal authority to close Defendant’s account,” said the lawsuit. “3G has contested TuCoop’s authority to do so and has threatened with litigation.”
TuCoop president resigns as trade group treasurer
Prior to taking legal action, TuCoop sent out an open letter to its cannabis clients on Feb. 14, 2023, claiming that it had identified some of its cannabis clients using electronic payment services that TuCoop believes were intended to conceal the fact that cannabis was involved in the transaction.
Based on the lawsuit that would follow months later, the transactions worked similarly to how some dispensaries in other parts of the United States have attempted to allow the use of debit cards by essentially using the store’s POS card processor like an ATM. Sales prices are rounded up to the closest $5 or $10, and the difference is paid back to the customer in cash. TuCoop claims that 3G took the additional step of making efforts to obfuscate the cannabis-related nature of the transactions.
The February letter, obtained by CRB Monitor, did not list any client names, but did say that the credit co-op’s opinion was that such activity is illegal under federal law.
The MICaM Board of Directors held an emergency meeting on Feb. 15, the day after TuCoop sent out its initial open letter. During that meeting, TuCoop President Israel Menchaca resigned as treasurer of MICaM.
The response noted that TuCoop never named a specific operator, nor provided any evidence of wrongdoing. The organization’s position is that even allegations of criminal conduct tarnishes the image of the Puerto Rico cannabis industry.
The organization also reaffirmed that it believes no members of the group have violated the law or any regulation governing the medical cannabis industry. The board formally decided to disregard TuCoop claims and to seek legal representation for the matter.
TuCoop responded two days later on Feb. 17 with another open letter. In this one, TuCoop stated that it was not explicitly accusing any of their cannabis clients of criminal activity, but that they had observed behavior that the credit union believes could run afoul of federal law.
Months later, TuCoop specifically cited the activities of 3G Green Gold Group as sufficient justification for the credit union to cancel their service agreement with the company.
“In view of the above, it is respectfully requested from the Court to declare that, based on the applicable Federal laws and regulations, TuCoop is entitled to close 3G’s accounts with the financial institution,” said the lawsuit.
