Green Check has spent the last 4 years singularly focused on helping financial institutions launch and scale compliant cannabis banking programs, so I think it's fair to say we've seen a thing or two. From witnessing a large cannabis business pay a $400k tax bill in cash to helping bank CEOs develop procedures for sending their staff to onsite dispensary visits, this line of business certainly pushes the boundaries on what would be considered "business as usual." The experience of working with institutions that have chosen to overcome the unique challenges of cannabis banking has always been a driving force behind what we do at Green Check, and with the recent launch of our account monitoring feature, we're upping our bet on automation being the defining characteristic of successful, compliant, and profitable cannabis banking programs. Beyond just sharing the finished product, we also wanted to share a little about our thought process behind the importance of automation.
As you may know, Green Check works with institutions that are launching brand new programs as well as those that are looking to migrate their existing manual program to a more automated environment, so we've had the benefit of getting "under the hood" to see how a variety of institutions are attempting to bank this industry today. While ambitious, manual programs inevitably highlight how the inefficiencies and risks of banking cannabis are quite simply exacerbated by the manual controls designed to mitigate them. Take the example of monitoring account activity to determine which MJ SAR type to file.
On the surface, the process is relatively straight forward:
- Collect relevant account data
- Evaluate transaction data against business records (e.g. sales and inventory reports)
- Determine if any of the MJ-specific red flags can be identified
While seemingly simple, the complexities of this exercise lie in steps 2 and 3. Since MJ-specific red flags cannot be readily identified using core transaction data alone, bankers must request detailed sales and inventory reports from their cannabis business customers. These reports come in a myriad of formats and can be quite difficult to parse, so it takes a considerable amount of time to extract the data points needed to perform the account analysis.
As an aside, I had the opportunity to assist a financial institution with the manual data collection/prep work in 2020. A team of 4 had to collect over 400 unique reports from a portfolio of ~70 accounts. It took 2 weeks to track down these reports and another 2 weeks to extract the data needed from each file — a full month worth of work just to prepare for a quarterly exercise! Unfortunately, this is not uncommon for institutions managing a manual cannabis program. The process looks like this:
As you can see from this diagram, the majority of the work is in preparing the data needed to answer the question "are there any MJ-specific red flags?" This is problematic for 2 reasons:
- The emphasis is placed on data preparation, not interpretation/analysis. With most bankers working with limited time and resources, this results in the more mission critical tasks being rushed and/or overlooked.
- The manual efforts involved in this exercise introduce a considerable amount of risk of information being incomplete or incorrect.
To state the obvious, there is clearly an imbalance of priorities vs. effort. Examiners expect bankers to prioritize the analysis of account activity as a way to mitigate against the associated BSA/AML risk; however, it's exceedingly difficult to do so based on the time and effort needed just to gather and prepare the relevant information. At Green Check, we don't view technology as a way to replace human effort, but rather a tool that unlocks human potential by allowing users to leverage their unique expertise to perform more value-added tasks for the organization. With this subtle distinction, we focus on the "robotic" tasks that humans are currently doing which would be better suited to automation.
Among other things, our Account Monitoring tool removes the manual and formulaic steps from this process, thus allowing users to focus on the subjectivity portion of the account review. Simply put, Green Check automates the prep work (data aggregation, normalization, presentation) so the experts can spend all of their energy using their skill sets to analyze the data being presented to them. In addition to saving time and effort, we believe leveraging automation for this use case will lead to more compliant outcomes as the emphasis can now be placed on analyzing results, researching and resolving exceptions, and deploying corrective actions (as needed).
The growing number of institutions focused on serving the cannabis businesses in their communities have continued to show us what's possible when you combine the right systems and processes with a little bit of creativity and a whole lot of open mindedness. We're excited to launch this new Account Monitoring feature, and look forward to adding more automated solutions to our niche banking line up.