Pot credit union tussles with the Fed in court

Marijuana buds at The Farm in Boulder, Colorado.
David A. Grogan | CNBC

The heat is on in a lawsuit between a proposed marijuana-focused credit union and the Federal Reserve, the Los Angeles Times reports.

Fourth Corner Credit Union, a nascent Colorado banking firm, aims to be the first American financial institution that caters openly to the cannabis industry, the LA Times reported.

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But the Federal Reserve Bank of Kansas City opposes letting them enter the federal banking system, a move that would fund commerce of a drug that is still illegal at the federal level.

Tensions bubbled up when the case held oral arguments in Denver on Monday, with Fourth Corner arguing for "a level playing field" when it comes to getting a master account from the Fed.

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The Fed's attorneys said the tenderfoot bankers were denied a master account because of too little upfront capital. But the judge said he was unimpressed with the argument, according to the LA Times report.

With a decision expected in the days ahead, a ruling could set the tone as other states with legal weed wrangle thorny regulatory challenges, sources told the LA Times.

A Kansas City Fed spokesman declined to comment on the case.

"Honestly, after hearing the arguments yesterday in court, I still find myself uncertain as to the reasoning behind our denial,” Deirdra O’Gorman, president and CEO of Fourth Corner told CNBC in an email. "My sincere hope is that Congress will act soon, so that these legal businesses can have access to banking services. Not only do these legal businesses deserve a financial institution that will work to help them accomplish their financial goals, but access to banking will help solve this important public safety issue. The more funds we can funnel away from illegal operations into legitimate areas, like funding for schools or tax revenue for states, we can help to positively change our communities."

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