While the order of these two words might seem unimportant to the untrained eye, in reality, it highlights an important distinction between the right and wrong way for banks and credit unions to approach this industry. As a financial institution, your focus should be solely on banking cannabis, which means you truly understand the cannabis industry — including its rules, operating models, challenges and opportunities — and you have a real understanding of and visibility into your cannabis-related business clients.
This starts first and foremost with gaining a full grasp of why you would bank a cannabis business. What are the benefits to your institution now, and what does a comprehensive, multi-year financial model look like knowing your market and where it is headed? What are the risks, and how should you communicate those to the board? And finally, do you truly understand the complexities of the industry you are entering?
Keri Cain, Director of Special Programs at Regent Bank, explained this well in a recent Tearsheet Podcast.
“Banking cannabis is definitely a subject that’s very complex. So, for example, Regent Bank is a state charter bank. In Oklahoma, we have a medical marijuana program. And same for Missouri. But it’s not your traditional banking methods. You are going in, and you’re looking at every single client, and you’re really trying to understand who they are. Are they above board? Are they selling to folks who have patient cards? And are they buying product for folks who are licensed by the state authority?
If you’re a financial institution in different states, then you really have to be an expert to successfully bank this industry because of such regulatory compliance around it. It’s very complex with a lot of things that you have to pull away to understand how it all needs to come back together.”
One of the positives of taking the time to understand the complexities of banking cannabis is that it also reveals its immense opportunities. Financial institutions with cannabis projects as opposed to programs, or those with a vendor sitting between them and their true customers, will never realize the gains that come from building direct relationships in this industry and offering the wide range of financial services needed to help it grow.
Unfortunately, while investing the time to understand the cannabis industry and the opportunities it presents typically solves the critical objective of giving institutions their ‘why,’ many institutions find their pitfall in the ‘how.’
There are a lot of varying opinions on this, but the best place to start with the ‘how’ is by examining the level of effort required to do this manually versus using automation technology. (For a case study on the efficiency gained through automation, click here.) Keep in mind, your approach must meet your strategic coals while staying up-to-date on a myriad of compliance requirements. This is a tedious and time-consuming process if done manually. More importantly, as institutions increasingly adopt the ‘banking cannabis’ approach with efficient and transparent programs, examiners expectations will increase in kind. And if you are waiting for the SAFE Banking Act to pass to minimize some of this complexity, just know that the rules and regulations are going to increase, not lessen.
Like any other niche line of business, the institutions that find the most success will be the ones that truly understand and embrace the industry they are serving, not those with siloed or half-hearted approaches. Take the time to understand the cannabis industry and how to bank it correctly by engaging with experts, and build a program built on efficiency and scalability using automation technology. By having a long-term vision for your program, and how it can help you meet your strategic goals, you are setting yourself up to successfully bank cannabis.
Note: Green Check Verified has worked with financial institutions in 30 states to help them build and scale their programs with expert advisory services and industry-leading compliance technology. To start a conversation with Green Check Verified, click here.