We had another great webinar last week in which we talked with financial institutions all across the country about measuring the impact cannabis banking would have on their strategic plan. I spent some time getting feedback from our attendees, and I wanted to summarize a few key points about answering the question: “should I bank cannabis?”
- The decision can’t be made in a vacuum
There are many moving parts to consider whenever you’re evaluating a new product line, and this decision becomes even more involved when it includes a new customer segment. Layer on the fact that the segment is highly regulated and you’ve got yourself a complex set of decisions to make. Given the dynamic nature of this initiative, it’s critical to involve key stakeholders early and often throughout your process. Your internal teams should be consulted as they can offer perspectives and questions that you may not have considered. Equally important are the conversation you need to have with external stakeholders such as your auditors, examiners, and key vendors that may be impacted by your decision. Our CEO Kevin Hart said it best during the webinar: “no one likes being surprised.”
- Risk vs. reward applies here too
Despite the high profile nature of this decision, it’s a business decision just like any other. That means the decision must include both the risks and the expected reward in order to effectively weigh your options. With a 35% compound annual growth rate, it’s clear that this market segment presents substantial opportunity. With that said, there are of course clear and measurable risks that must be considered, but these risks need to be weighed alongside the financial opportunity. It’s easy to focus on the risks alone, but without consideration for the upside, the decision making process will be incomplete. Painting the complete picture is especially important when presenting the initiative to the Board for approval. Board members need the ability to make an informed decision about cannabis banking, and articulating the financial opportunity is something that often gets glossed over in favor of focusing on the perceived legal, regulatory, and reputation risk.
- Treat cannabis banking as its own line of business
Although the products you offer cannabis businesses aren’t technically new, the nature of the market and the oversight required warrant special attention. All of the teams we work with take great care to structure their cannabis banking program as its own line of business. They develop a business plan, articulate goals, and track the financial performance of their cannabis banking activities. In addition, treating this as a dedicated line of business enables institutions to develop proficiencies and areas of expertise amongst their team, creating a stronger control framework and a more competitive program overall. This discipline forces each institution to manage applicable risks while also focusing on profitability of the program. After all, a program that introduces risk AND costs you money is probably not in line with your strategic goals!
If you’re working on quantifying the “should I do it” question, then please keep these three ideas in mind. And when you’re ready, reach out to us because we’re eager to share more of our learnings with you.
This webinar was the second in a 3-part series designed to help institution’s develop or enhance their cannabis banking programs. Part 3 of the series will focus on the question, How Do I Do It?, so we can help you turn these ideas into actions. You can register for part 3 of the webinar series here.