Evolving Beyond Compliance: Using Financial Data for Business Development

Compliance is critical for the cannabis industry and for the financial institutions (FIs) that serve them. But compliance is just the starting point, not the finish line. Sure, the regulatory framework dictates the information that must be tracked and reported, but there’s much more that can be done with this data.

In this guide, we’ll explore the ways financial data from cannabis operators can be used to grow businesses and improve outcomes for both cannabis operators and financial institutions.  For example, how to identify the most profitable types of customers, refine customer personas, establish peer groups, and develop referral partnerships.  This strategy helps your institution better serve cannabis clients and develop long-term relationships. 

What information is required for compliance?

Let’s start by looking at the data that FIs are already required to collect. Financial Crimes Enforcement Network (FinCEN) regulations require financial institutions (FIs) to gather and monitor considerable data on an ongoing basis when working with cannabis companies.

Before beginning a relationship with a cannabis operator, FIs are responsible for meeting Know Your Customer (KYC) standards. This involves validating customer documentation such as Employer Identification Number/Tax Identification Number, Articles of Incorporation, Operating Agreement, property title and lease, and certification of insurance. 

Perhaps most importantly, FinCEN guidance requires FIs to monitor a cannabis-related business’s (CRB) financial activity on an ongoing basis. This includes monitoring data like:

• Product sales: Tracking product sales data allows financial institutions to verify that a cannabis operator’s revenue aligns with their reported inventory movements and customer traffic patterns. This confirms that every dollar in the accounts is legally obtained.
  
• Revenue: Monitoring revenue trends helps identify unusual fluctuations that might indicate undisclosed cash transactions or potential money laundering activities.
  
• Expenses: Analyzing expense patterns ensures business costs are proportionate to operations and consistent with industry benchmarks. Potentially suspicious transactions can be flagged and investigated early on.
  
• Deposits: Regularly reviewing deposit data, such as frequency, size, and timing, helps financial institutions detect structured deposits designed to avoid reporting thresholds.
  
• Withdrawals: Scrutinizing withdrawal patterns can reveal unusual cash outflows that might indicate commingling of funds or diversion to unauthorized activities.
  
• Average transaction value: This metric helps establish normal customer spending patterns, with significant deviations potentially indicating bulk purchases that warrant further investigation.
• Cash reserves: Monitoring on-hand cash reserves relative to reported sales ensures consistency between physical cash and accounting records, helping detect potential underreporting or diversion.

In practice, this means integrating with a CRB’s seed-to-sale and point-of-sale systems to track their entire supply chain. FIs can then compare data to historical norms for the business and typical patterns for similar businesses in the same market. This is essential for FIs to fulfill their Anti-Money Laundering (AML) duties as required by law. 

For FIs that already collect this data for compliance purposes, this information can also serve another important role: for business development.

How to use compliance data for business development

Data is a critical asset in modern business, and the information banks and credit unions collect for compliance can be repurposed for a range of business development activities. Here are a few examples of how that data can be easily leveraged with the help of Green Check to help grow your cannabis banking and financial services program.

Identify the most profitable types of customers

Collecting such deep data on each and every customer grants you the opportunity to expand your portfolio in the most profitable way. This information helps you better understand the customers that drive results for your program, so you can tailor your business development and marketing efforts to be as effective as possible.

For example, it could be that dispensaries are the primary source of deposits, while your cultivation clients aren’t putting away much money. Or it could be that CRBs in one market are outperforming those in another. These sorts of insights help you direct your investment dollars where they’re most likely to generate a return. 

Want to learn more about building a profitable cannabis banking program? Check out our guide on how to beat the cost of funds for cannabis deposits.

Refine customer personas

Reviewing data about your customers gives you deep insights into who they are. What are their most popular products? How do their customers engage with them? How has their business grown over time? As you better understand each individual customer, you can see patterns emerging as to what types of businesses benefit most from your services. 

Using Green Check, you don’t have to rely on the data alone to draw these conclusions — you can ask your customers directly. Develop questionnaires within our system and send them directly to your customers to find out more about the story behind the data. Using this information, combined with knowledge of which types of customers are most profitable, you can refine your customer personas and better understand who your target audience should be. Then, you can tailor your marketing strategies to attract more customers who need your services.

Establish peer groups for customers

Establishing peer groups for customers allows you to see what “normal” activity looks like in a given market or segment. This not only makes it easier to identify suspicious activity for compliance purposes, but also enables you to coach customers on how to improve their performance, adding value to your services. By staying apprised of trends and patterns in each market, you can help your customers grow and succeed, driving their loyalty and securing their business.

Green Check makes this easy, with a tool that helps you develop peer groups and categorize your customers accordingly. With a few clicks, you can review the collective data in each peer group, as well as drill down into individual customers and see who is performing above or below baseline. Beyond simply flagging anomalous activity that could signal a concern, this enables you to better understand your customers and the market as a whole. 

Develop referral partnerships

When you have customers who need additional services that you don’t provide, you could be a valuable source of referrals for other B2B companies. Armed with this data, you know what services your customers could benefit from. Thanks to the Green Check Connect marketplace, you have a ready-made network of partners to work with. And since your customers have already been onboarded to the Green Check platform, it will be easy for them to get started with another Green Check partner. 

Green Check Connect brings together cannabis-friendly FIs and service providers who are actively looking to work with CRBs. If you determine that many of your customers need additional services, this could create an obvious opportunity to build referral pipelines. That’s just another way to monetize your portfolio through revenue-sharing agreements with other businesses. And who knows? They may be happy to send you new customers as well. 

Go beyond compliance with Green Check

High-risk industries like cannabis may face additional compliance requirements, but that doesn’t have to be a challenge. Instead, with the right tools at your disposal, this data can become a treasure trove that helps you improve business outcomes and grow your program with confidence. If you’re ready to take charge of your customers’ data and make it work for you, get started with Green Check today.