I have spent a lot of time with banking executives and directors discussing their decision to bank - or not to bank - cannabis-related businesses (CRBs).
We appreciate the weight of their decision as they wrestle with reputational, financial and regulatory risk concerns. We have learned that these three risk areas are key to cannabis banking programs. If you are in a position to counsel your board of directors on what to consider when deciding if cannabis banking is right for your financial institution (FI) here are three key points to lay out:
Reputational Risk: What Your Customers & Members Care About
We helped more than twenty of our financial institution clients and prospects poll their customers/members to gauge their reaction to the idea of their FI banking CRBs. The responses boiled down to two reactions:
1. Concerns around a threat to shut down a personal account
2. Inquiries about opening up commercial accounts
If you conduct your own poll, you'll undoubtedly find that it's a "non-issue" in most public forums as the national polls wide-scale acceptance of cannabis consumption.
During the July 2019 Senate Committee Hearing, Challenges for Cannabis and Banking: Outside Perspectives, it was revealed that 93% of Americans agree with medical use marijuana. Furthermore, to date no FI has been fined for running a compliant, cannabis banking program in line with FinCEN guidance and state regulations.
Financial Risk: Risk or Reward?
Some banks are concerned about “deposit protection” and losing long-time banking clients to competitors down the street who are investing in CRBs. According to direct client feedback, a large number of accounts are being shut down by other FIs due to the nature of being tier 1 or tier 2 CRBs. This is unsustainable. Cannabis is currently a $13B industry, growing at about 35% CAGR.
“Retail sales of medical and recreational cannabis in the U.S. are on pace to eclipse $12 billion by the end of 2019 – an increase of roughly 35% over 2018 – and could rise as high as $30 billion by 2023,” reports the newly released 7th annual Marijuana Business Factbook from the editorial team of MJBizDaily.
This growth trajectory - and the promise of access to new low-cost deposit dollars, are starting to give financial institutions a few billion reasons to consider cannabis banking.
Regulatory Risk: What to Know About Banking Cannabis
When we talk about “boxing the risk” we are referring to the steps FIs take to design, develop and demonstrate compliant cannabis banking programs.
While a cannabis banking program that your FI, Board of Directors, your EIC, your vendors and your members/customers can understand is certainly attainable, there is quite a bit of work and decision making involved. Do you know what it takes to implement a cannabis banking program? Here at Green Check we help FIs that are interested in learning how to develop a cannabis banking program that aligns with existing federal guidance and state-level regulations.
We recently wrapped up our three-part cannabis banking webinar series, where we discussed the top questions around building and implementing a cannabis banking program. Click the links below for access to the slides and recordings from the series:
Want to learn more about how Green Check can help? Contact us for more information.