Over the years I’ve had the opportunity to take part in the strategic planning process for credit unions and I’ve recently, at Gleam Law, been looking at the strategic planning for community banks. It should come as no surprise, but their goals look remarkably similar. Albeit the language they use is a little different, but the end result is the same. The goals generally focus on growth, financial health, market share and community support.
Let’s take a look at how serving the cannabis industry can impact these strategic goals.
I recently read an article published by the ABA that talked about what keeps community bank CEO’s up at night and the number one response was acquiring new customers. Membership growth is also a major concern of credit union CEOs.
In March 2019 a joint report was issued by Leafly and Whitney Economics that found there are 211,000 full time jobs in the cannabis industry and 296,000 when you factor in ancillary businesses. A BDS Analytics study estimates there will be over 330,000 direct jobs and 467,000 including ancillary jobs by 2022. On the business side, cannabiz media found that in January 1, 2018 there were 9,522 licensed marijuana businesses and by December 10, 2018 that number jumped by 82% to 17,350.
As more states implement their cannabis programs these numbers will continue to grow. The majority of these employees and businesses, however, remain unbanked and are actively looking for a banking relationship.
Banking is a tough business. Banks used to make money on the spread between deposits and loans. Now the majority of income is based upon non-interest income. However, this is increasingly coming under fire from consumer protection advocates, especially directed at NSF and overdraft fees. With the changes to the CFPB that pressure has eased, but I don’t think it will go away.
The benefit of the cannabis industry is that fee premiums can be placed on these accounts without the stigma of feeling the least able to pay. This premium can be applied to the licensed CRBs, ancillary businesses and individual accounts as well. This allows financial institutions (FIs) to design their fee structure to cover compliance and other costs. and then add a risk-based return. I have spoken to many FIs and I have never heard any complaints about the income generated by these accounts.
3. Market Share:
This is truly a blue-sky market! The majority of cannabis-legal states have no FIs serving the industry, including the ancillary businesses or the employees of CRBs. These businesses have proven to be very loyal to the FIs who have given them their first legitimate bank accounts.
Contrary to most FI’s fears, banking the cannabis industry has not hurt their reputation with their target audience. In many cases, FIs have said their community reputation has improved.
The safety and soundness of a FI banking the cannabis industry has a direct transfer effect to the safety and soundness of the community. Businesses - read that as cash - needs to be in FIs not homes. Not so incidentally, by following the FinCEN guidelines the FI is effectively partnering in the enforcement of state cannabis laws. This is an opportunity for an FI to highlight their role in supporting community safety.
I recently partnered with Green Check to launch a 3-part webinar series, designed to help institution’s develop or enhance their cannabis banking programs. You can listen to Part 1, Cannabis Banking: Can I Do It? and Part 2, Cannabis Banking: Should I Do It? Register for Part 3, Cannabis Banking: How Do I Do It? taking place on Sept 10.