How Cannabis Banking Works in Sovereign Nations

Cannabis businesses operating within “tribal,” or sovereign nations, need banking services like any other cannabis company. It’s important for every cannabis business to work with a financial institution that recognizes their work transparently. This truth extends to cannabis businesses with licenses issued by sovereign nations as well as American state licensing boards.  

If your financial institution already banks state-legal cannabis companies or is considering servicing this industry, working with sovereign nations can be a natural next step in expanding your program. 

Perceived challenges to banking cannabis companies on sovereign land

The stigma around cannabis and concerns about its federally illegal status keep many financial institutions away from banking the industry as a whole. Additionally, some financial institutions may be hesitant to work with sovereign businesses due to their autonomy from the U.S. government, which may present challenges for banks when they need to gather public information routinely collected from U.S. businesses. 

Much like the nuances between state-to-state cannabis regulations, sovereign cannabis programs have legislative differences, too. Sovereign nations sometimes permit cannabis businesses to do things that are typically not seen in state programs, such as using a P.O. Box as a business address. This can present complications for financial institutions with existing cannabis banking programs based on state laws, which companies within sovereign nations are often required to abide by as well. 

Similarly, some financial institutions may express hesitation in working with cannabis businesses in sovereign nations because they receive federal funding. This is a curveball for these institutions while cannabis remains federally illegal. For example, the American Rescue Plan passed by Congress in March 2021 allocated $1.75 billion to sovereign nations across the U.S. However, states also receive federal funding for all sorts of programs, and their legal cannabis programs are not an issue. If we consider sovereign nations the same as a state, receiving federal funding need not preclude a financial institution from extending services to indigenous-owned cannabis businesses. 

As a result, a gap in financial services has developed for the growing number of CRBs on Indigenous lands. That gap is beginning to close, though, as more financial institutions sign on to work with these businesses.

Where banking guidance for sovereign nations comes from

The basis for banking regulations for sovereign nations comes from the 2014 Wilkinson Memo. This document essentially acknowledges that the 2013 Cole Memo applies to sovereign nations too. The two memos effectively say that the federal government neither condones nor condemns the legalization of cannabis in states or sovereign nations. In other words, the federal government takes a hands-off approach to legal cannabis programs in the 50 states and 500 federally recognized First nations, allowing them to self-determine their policy toward cannabis. 

Are sovereign nations’ cannabis programs federally regulated?

Sovereign nations run their own cannabis programs — they are not regulated by a federal body — and therefore, existing banking regulations still apply.

There is a common misconception that the federally recognized designation of these sovereign nations means these nations are federal entities. This is not accurate. Instead, sovereign nations are independent entities.

When a financial institution is assessing sovereign nation cannabis programs, it’s helpful to think of each First nation much like they would any state. Tribal leadership devises the rules and regulations by which their community’s cannabis program operates. This is analogous to a state devising its own licensing process for plant-touching cannabis businesses. 

How state level regulations affect sovereign nations’ cannabis programs

Sovereign nations should be conceived of as bordering a U.S. state, not as an entity that exists within a U.S. state. As independent entities, sovereign nations have a right to devise their own legal cannabis programs and set requirements for the industry independently of the bordering state government. It’s similar to New Jersey setting policy that differs from the regulations established in neighboring New York.

Some financial institutions prefer cannabis businesses in sovereign nations to follow the rules of the bordering state’s legal cannabis program. Some states are sensitive to the issues this poses to sovereign nations and their cannabis markets, and have worked to align their programs with First nations’ programs. 

Both approaches result in two primary methods of engagement between a financial institution and a cannabis business in a sovereign nation’s program: a hands-on approach and a hands-off approach.

Method 1: States signing compacts with First nations

The first method is by signing a treaty called a compact with sovereign nations. The compact says that the state government acknowledges the legitimacy of the sovereign nation’s cannabis program so long as it is at least as restrictive as the state’s, if not more so. These compacts may also include terms about taxation, law enforcement, and other elements commonly covered in state cannabis policies.

Nevada has taken the compact approach. Currently, the state has agreements in place with thirteen tribes. These compacts provide a mutual acknowledgment of one another’s legal cannabis programs. In the case of cannabis banking, Nevada’s compacts provide financial institutions with reassurance that the state government isn’t going to engage in law enforcement actions against a sovereign nation’s cannabis industry.

Method 2: Respecting sovereign nations’ self-determination

Other states won’t impose their rules on a sovereign nation’s cannabis program. Minnesota, for example, has said it is open to entering into compacts, but it won’t impose their rules on sovereign nations. The result of that policy is that sovereign nations started adult-use sales in Minnesota before they started statewide. The Red Lake Nation also operates a “cannabis food cart,” which wouldn’t be legal under Minnesota’s current regulations. Since the state has pledged to respect the sovereign nation’s independence, the mobile dispensary can operate.

Similarly, the Eastern Band of Cherokee Indians adopted a medical marijuana ordinance for their territory, which is bordered by western North Carolina. North Carolina does not have a legal medical cannabis program, but the state has accepted the tribe’s right to set up the program. So long as patients have a medical card issued by the tribe or another legal medical cannabis program and they do not leave the tribe’s territory with cannabis products, it’s considered legal to purchase and possess cannabis products.

Many financial institutions are less comfortable with this arrangement. The lack of compacts create an uncertainty that many bankers aren’t willing to touch. However, that simply creates an opportunity for financial institutions that are willing to partner with these businesses.

Why provide cannabis banking to sovereign nations?

Providing banking services to sovereign nations is a positive stride in the right direction. It’s a crucial step toward inclusivity and democratizing business and financial services for the entirety of the cannabis industry. 

That being said, sovereign nations are generally smaller markets than U.S. states. Still, there are compelling reasons to provide banking to cannabis companies on sovereign land.

First, providing banking services is imperative for money laundering prevention. When licensed cannabis businesses are forced out of the financial system, they may use legally ill-advised workarounds instead. While this workaround may seem above board, it effectively forces the business to launder money. Banking puts all cannabis businesses into the financial system, where their transactions are tracked and documented.

Without oversight from a bank, the federal government has more difficulty identifying and prosecuting truly bad actors. Keep in mind that a “bad actor,” according to the Financial Crimes Enforcement Network (FinCEN), is a terrorist or a cartel, not a legal cannabis business.

Second, there’s a business opportunity to enter a niche within a niche. For banks setting up a cannabis program, sovereign nations represent a specific market that, although limited in size, lacks much competition. This could represent an opportunity for smaller banks to serve cannabis companies and grow their business while gaining valuable experience about banking the industry.

How to set up a cannabis banking program for sovereign nations

If your financial institution wants to serve cannabis companies within sovereign nations, we’ve got good news — it’s not much different than setting one up to serve state-legal businesses. We recommend the following steps to ensure you get your program started successfully.

• Reach out to tribal leadership. Start by contacting tribal leadership and letting them know you’re interested in providing services to cannabis businesses in the community. Ask them for the best point of contact and any resources that can help get you up to speed on the rules and regulations. This information lets you develop a compliance plan that meets the expectations of federal regulators. A great source of information for the cannabis industry is the Indigenous Cannabis Industry Association.
• Evaluate the market. Get an understanding of the ins and outs of a sovereign nation’s program the same way you would a state. Determine which businesses are most prominent and the types of businesses that exist. Are there vertically integrated operations? Are there any unique types of cannabis businesses, such as the Red Lake Nation’s mobile cannabis cart? Consider which businesses you might be able to work with.

• Make a risk-based decision. In any state, financial institutions make case-by-case, risk-based decisions on who to work with. Do the same when it comes to providing banking to indigenous-owned cannabis businesses. Just because you’re serving businesses in a sovereign nation doesn’t mean you need to accept every applicant, so maintain the same standards you would when evaluating a state-legal cannabis business.

• Adhere to compliance best practices. Compliance rules are the same as they would be in a state, so gather the same information about sales, revenue, deposits, and withdrawals that you would elsewhere. Public information may sometimes be more challenging to come by in sovereign nations, so it’s important to maintain a strong relationship with tribal leadership.

Cannabis banking benefits from Green Check

Whether you’re providing cannabis banking within a state or within a sovereign nation, you can benefit from working with Green Check. From compliance guidance for financial institutions to the Green Check Connect community of cannabis businesses and service providers, we help financial institutions serve this growing industry, and vice versa. It’s our mission to connect every cannabis business with the financial services they need to thrive. Get started by speaking to an expert who can guide you throughout your cannabis banking journey.