This week voters in five states either approved or expanded the legality around marijuana in their state. Typically what we’ve seen right after a positive vote is that financial institutions immediately start thinking about the risks, concerns and opportunities around this line of business.
I thought it might be helpful to address the number one question we get on this topic, which is “Can I really bank cannabis business while it’s still federally illegal?”
The quick answer is yes. You can bank cannabis businesses… if you adhere to existing guidance and put together a structured and well-thought-out program.
Now for more explanation.
There are hundreds of financial institutions across the country actively banking cannabis today, many of which have already been through successful examinations with their regulators, both Federal and State. They have created strong programs that have weighed the risks of getting into this line of business against the rewards of increased deposits and additional fee revenue. And they’ve made sure this line of business fits with their institution’s overall strategic direction. All of those steps are critical to a successful beginning – but wait, there’s more.
I thought it might be helpful to tackle some of the most frequently asked questions that we hear from those early in their cannabis banking journey.
Q. Aren’t state chartered institutions the only ones who can bank cannabis?
A. No. Federally chartered institutions can, and do, successfully bank cannabis. There is an assumption that State regulators are somehow more lenient or more knowledgable around the topic, and while that may be marginally true Federal regulators generally approach this from BSA/AML perspective and are actively participating in discussions with institutions around cannabis banking.
Q. Won’t our institution get shut down?
A. Not if you do it right. The observation in the industry is that a regulator will not come to you and shut down your institution just because you are banking cannabis. What they will take issue with is a poorly run program that fails to develop a clear compliance and risk architecture around this unique line of business.
Q. Isn’t it too much work?
A. There is extra overhead with running a cannabis program, though it’s not unlike a commercial lending portfolio in terms of staying connected to those businesses, reviewing financials and other documentation, risk ratings, keeping track of concentrations, and so on. However, similar to a commercial lending portfolio, the pricing is risk-based. You will be compensated for taking the additional risk, which has the potential to more than offset any additional costs for staffing or software.
The key to success here, if you are interested in pursuing the opportunity, is to start discussions now with key stakeholders, including examiners, auditors, key vendors, your board and your team. You may be surprised at the receptivity.
And when you’re ready to move forward, we’d love the opportunity to position you for success. We’ve seen the positive impact a cannabis line of business can have on a financial institution with the institutions we work with across the country everyday. Once you learn that you CAN, you’ll love when we show you the financial impact of WHY. We’re happy to have a conversation, so don’t hesitate to contact us.