Banking Cannabis Companies: An Underestimated Opportunity For Growth

In the ever-evolving landscape of the financial world, institutions are perpetually in search of uncharted territories for growth and diversification. Yet, one remarkable frontier often overlooked is the world of banking cannabis-related businesses. This burgeoning sector encompasses a vast spectrum, including plant-touching marijuana enterprises, hemp operations, CBD manufacturers, and ancillary services. Within this article, we will delve into the myriad of advantages and unique opportunities that arise when financial institutions dare to embrace the cannabis industry, and what institutions should consider regarding business development efforts for the growth of their cannabis banking program. 

Revenue Growth: The Green Rush 

First and foremost, let’s talk about revenue growth—the magnetic force that often lures financial institutions into new ventures. Banking cannabis businesses holds the potential to deliver an exhilarating boost to a financial institution’s revenue by offering low-cost deposit growth. Many of these enterprises generate substantial cash flows and have multifaceted financial needs, ranging from basic business accounts to intricate lending solutions and investment opportunities. 

To appreciate the significance of this opportunity, consider a time not too long ago when these businesses were ecstatic to secure a simple bank account. Today, financial institutions must adopt a competitive approach in crafting their product offerings. The unique financial requirements of cannabis companies can inspire financial institutions to innovate banking products and services. These innovations, in turn, may reveal applications in other sectors, thereby enhancing the institution’s overall product portfolio. 

One trailblazer in this space, Green Check Verified, leads by providing insights into gaining a competitive edge within product offerings and understanding what Cannabis-Related Businesses (CRBs) need for success. Their expertise exemplifies the potential of specialized services tailored to the cannabis industry.

Business Development Strategy and Execution: How, What, Who? 

Another large component of a cannabis banking program is considering the process of creating a business development strategy. How will your institution plan to connect with cannabis companies? What will your onboarding process look like? Who will be the point of contact for cannabis businesses? You may find it helpful to adopt common business development strategies into your business development plan, but keep in mind that you may need to be creative regarding typical outreach strategies, and ensure the customer experience is smooth. 

Target audience: First and foremost, a financial institution must understand who the ideal target customer is going to be. Does your institution plan to offer financial services to all cannabis businesses? What is the geographical location in which your financial institution is looking to extend cannabis banking services? For example, credit unions must consider their membership areas. What is the market opportunity and growth rate of your defined area? Is there business growth? Do you need to consider expansion to connecting states? What financial institutions are cannabis friendly in your target area? 

Prospecting: Creating innovative ways to connect to cannabis companies is crucial. What are your methods for executing your business development strategy? Working with cannabis companies can be different from any other business you have worked with before; therefore, this may mean creating unique ways of connecting with potential customers. Consider attending cannabis-specific events (local and nationwide), utilizing your state’s website for cannabis company locations and contact information, engaging in online communities such as cannabis-focused social media groups (yes, you may need IT to unblock some of those websites), requesting referrals from your existing network and relationships, advertising online for public programs, or discreet mailing campaigns for financial institutions wanting to offer a more private approach. These are just to name a few. 

Fees: How do you plan to structure your fee schedule? Are you going to charge the same fees for marijuana businesses as you would hemp businesses? What about sub-accounts? Take note, that as the industry fluctuates, so will fees. 

Long gone will be the days when charging high fees to cannabis companies is ideal. You need to be able to understand market shifts at the state level, and consider other competitive advantages regarding attracting cannabis companies aside from just a checking account. There may be a time when taking a “boots on the ground approach” will be necessary to grow your cannabis business portfolio, instead of only working from the back office. It is true that charging higher fees for banking cannabis businesses can help offset the costs of running a compliant cannabis banking program, but this means you should consider low-cost methods such as creating automated approaches to manage a program instead of hiring multiple employees to keep up with SAR and CTR filing. 

Onboarding Experience: Every client deserves a smooth onboarding experience. There are many important documents that need to be collected for enhanced due diligence requirements. Are you collecting more than necessary? Does the business understand why they need to submit specific documents to you? Do you have an easy process for cannabis businesses to submit the required information? If you are looking to extend services to the entire state, surely not every cannabis business plans on stopping by your institution to open an account, or desires the process of mailing documentation to you. How long will it take for a cannabis business to submit documents, for your team to review, and then approve the account? Consider an automated approach versus a manual approach, as well as who in your financial institution will have a hand in each area of the onboarding process along with an appropriate point of contact. 

Seasoned Cannabis Staff: When creating your cannabis banking program, and considering who to bring on board to help run the business development process, don’t overlook professionals who come from the cannabis space. Banking experience is important, but by hiring seasoned cannabis professionals, this can create greater opportunities for connecting to other cannabis businesses.  And you just may receive some fantastic referrals! The good news is that Green Check is happy to provide educational opportunities related to working with cannabis businesses, so even if you don’t have the option to hire experienced cannabis staff, we are happy to help direct your team to educational resources.

Understanding Overall Market Growth and Outlook: Riding the Green Wave 

The cannabis industry is in the midst of an explosive growth phase, with new markets emerging as legalization spreads like wildfire. In fact, the impact is so significant that once a market legalizes adult use, we witness growth rates that often surpass a staggering 4-5 times the initial size. The implications are profound. 

Financial institutions that position themselves early in this sector have the privilege of tapping into an extensive and rapidly expanding customer base, thereby extending their market presence. It’s not to say that those interested now are too late; however, waiting for federal legislation can potentially nudge your financial institution toward the back of the line. This is where competitive advantage plays a pivotal role. 

Although the number of financial institutions willing to bank cannabis-related businesses has grown over the years, it’s essential to note that there’s still a scarcity, especially considering the vastness of the financial institution market. By offering specialized services precisely tailored to the unique needs of cannabis companies, financial institutions can attract and retain clients seeking industry-specific expertise. 

Long-Term Strategic Partnerships: Cementing Success 

The third pillar of advantage lies in long-term partnerships. Providing banking solutions to cannabis companies lays the foundation for enduring relationships that transcend basic banking services. These partnerships often expand to encompass investment opportunities and advisory services, further solidifying the institution’s role as a trusted financial partner. 

Moreover, this strategic move diversifies a financial institution’s portfolio, reducing dependency on traditional sectors vulnerable to economic fluctuations. Diversification, in turn, bolsters overall financial stability and resilience, providing a buffer against market volatility.

The Path Forward 

In conclusion, banking cannabis-related businesses unfurls a panorama of strategic advantages for financial institutions. These advantages encompass revenue growth, diversification, competitive differentiation, and the prospect of forging long-term partnerships. By courageously embracing this burgeoning industry, financial institutions can navigate the evolving marketplace with confidence, unlocking new avenues for growth, innovation, and strategy. 

In a world where traditional banking paths are well-trodden, it’s those who venture into uncharted territories that often reap the greatest rewards. The cannabis industry, with its unique challenges and opportunities, stands as a testament to the untapped potential that awaits financial institutions willing to embrace innovation and change. As we journey forward, it’s imperative to recognize that the seeds of success are sown in the present, and the green shoots of growth are emerging in the cannabis industry. The question is, will your financial institution seize this often underestimated opportunity for growth? 

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