As reasons to say “no” to banking cannabis-related businesses (CRBs) are overcome, and the “how” to do it becomes understood, then the remaining question for banks and credit unions is when to launch such a program. In the still-unfolding coronavirus pandemic scenario, the answer can only be “now.”
“Now? While we are still in the midst of a crisis?” you may ask.
“Yes, now - in fact, right now,” say all indicators and the experts we surveyed. So, WHY right now? Because of three new realities that we were facing even before the pandemic: you need new deposits to provide liquidity; you will need liquidity to bolster your own operations and help your community recover; and you will need to act quickly to gather these deposits before your competitors do.
To be fair, it was likely that your institution was going to need greater earnings and liquidity, even before this pandemic struck. Margins that were already being squeezed were heading further in the wrong direction. Credit quality was starting to raise question marks in some sectors. The successful efforts of alternative and marketplace lenders continued to attract consumer and business credits away from traditional lenders. Payments providers also took slices of the pie formerly reserved for banks and credit unions.
With those situations aggravated now by the realities of the pandemic and the aftermath of its economic consequences, banks and credit unions are certain to remain on the front lines of helping their communities rebound quickly. To be part of the solution, your institution needs to maintain a strong capital position, high liquidity, and preserve its agility to respond quickly to business conditions. Given these variables, banking CRBs is a logical answer toward solving your deposits dilemma. The global pandemic shines a spotlight on why cannabis banking may be part of your FI’s own economic recovery.
An interesting side effect of the designation of cannabis dispensaries as “essential businesses” is that it provides a logical argument and justification for cannabis banking. Why should a business that a community has deemed not just important, but essential, be unable to obtain basic banking services in that local community? As Tom Angell states in his recent Forbes post, “In the era of expanding legalization, cannabis providers in many states are held up as vital members of the community who are providing a valuable service on par with picking up prescription drugs at a pharmacy or filling up your car at a gas station.” The chances of a Federal regulator or law enforcement authority wanting to pick a legality fight - especially when their areas of focus will be elsewhere for many months to come - are slim. [Note: Cannabis Dispensary Magazine is continually updating its list of the states who’ve declared dispensaries essential.]
Furthermore, the “essential” designation yields another clue to the financial health of CRBs. If a business is “essential” and therefore, can remain open when others have closed...what does that say about its status as recession-proof? While the cannabis industry hasn’t weathered a significant downturn just yet, it seems likely that both medical and adult-use revenue streams will remain strong. The parallels with pharmaceuticals and alcohol and tobacco sales are obvious. In lean times, people still make these types of purchases. Evidence of this comes in the form of this Leafly article citing a near “run” on cannabis dispensaries in the days leading up to broader business closures seeking to curtail the COVID-19 contagion.
By regulatory and municipal restriction, the number of CRBs in any given area is limited by law. This systemic design means there will be fierce competition among those locally who seek to bank these businesses. Your institution needs to act upon, not react to, this reality. The first provider to successfully put a stake in the ground in a local area gains the advantage of exposure, experience and proven track record when approaching future prospects. If your concerns center around having the internal expertise to effectively bank CRBs, you can turn to experts (like us and our network of advisors) to help you get it right. While cannabis banking may be new to your institution, it’s not new to others, including us. It’s commonplace to rely on trusted, proven resources when launching a new business line, and it can often mean the difference between success and failure.
There are many tough decisions your bank or credit union will face in the days and weeks ahead. Adding deposits and needed liquidity is one of the easy ones. Offering accounts to essential businesses whose regulatory risks are steadily declining is not only the right thing to do - it’s the right thing to do, right now.
Confused about where to begin? Our experts are here to help.