When working with banks and credit unions new to cannabis banking, one question often comes up, “since there’s only a few cannabis businesses in our community, where is the market opportunity for us?” For institutions faced with this dilemma, there are really two key considerations to think about when properly evaluating their opportunity with this line of business.
First, not all cannabis businesses are visible. While many people tend to focus on the public-facing dispensaries, there is an entire ‘seed-to-sale’ supply chain of growers, processors, labs, delivery operations and more. These businesses are often intentionally designed NOT to be visible to avoid unwanted attention, but they are just as in need of access to better banking services as the dispensaries in your community.
Second, your cannabis market opportunity often lies far beyond the traditional reach of your business banking services. With most cannabis businesses willing to have an armored courier pick up their significant cash deposits, we find that many institutions we work with deploy a model that allows them to bank businesses far beyond their initial geographic expectations.
In fact, many of our clients are able to do business across their entire state, and even across multiple states. With the shortage of financial institutions banking cannabis today, it often does not matter if you have a branch in the neighborhood of your cannabis business customers. This is particularly true in the age of digital banking.
With this expanded footprint model, here are a few operational considerations to keep in mind:
- Account Opening – If you currently offer digital account opening for businesses, you can certainly deploy this model for cannabis businesses as well. There will be additional documents required for cannabis businesses, but the basic packet of information you are currently collecting will still be required.
- Initial Due Diligence – To ensure you are collecting the right documents and creating a seamless review process, you can use a tool such as Green Check’s compliance software to collect and review documents using a portal that sits between you and your cannabis business customers. All the required documents can be uploaded and viewed online while completing the initial review process.
- Cash Deposits – Using a courier, deposits can be picked up at the cannabis business either directly or through the use of a smart safe, and then brought to the Federal Reserve on your behalf. Once the cash is received and verified, you’ll receive notice of the credit and can then credit the customer.
- Ongoing Due Diligence – For small cannabis lines of business (less than 10 average-sized customers), ongoing due diligence can be accomplished through manual efforts, though it is not advisable as the amount of data and analysis required goes far beyond any other commercial account oversight you may be accustomed to. Therefore, it is preferable to use specific compliance monitoring software that automates the key components of transaction and account monitoring that are unique to the cannabis industry while reducing human error and ensuring the compliance and health of the businesses you serve. For scalable cannabis banking programs, this kind of software is a must-have to safely grow your program while meeting increasing regulatory expectations.
While many institutions we speak with underestimate their market opportunity, the best way to truly understand the potential for your institution is to speak with an expert. Green Check’s advisors will help you to understand the full range of opportunity for your institution by sharing detailed information about the types of businesses you can expect to work with, what you can charge for your products and services and the number of businesses in need of banking services across your entire available footprint.
Created by finance professionals, and delivered by GCV experts, our Financial Modeling workshop, which is done as part of our Advisory Services engagement, will help you calculate the impact cannabis banking will have on your key performance indicators. Through this engagement you’ll receive, along with other valuable artifacts, a 5-yr financial model with dynamic variables you would use to project desired outcomes. With this information in hand, you can make an informed decision about the opportunity before you.
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