Strategic Planning is going to look a little different this year, isn't it?
It's become obvious to the industry that the retail storefront may not be the traditional leader of deposit generation that it has been. Customer behaviors have shifted, and in the early stages of the pandemic there was a realization that it would be hard to bring in new business without those folks in the branches being able to talk to prospects directly.
So what's your play?
Are you doubling down on your digital strategy? Or maybe considering going full-on digital? It's likely that your competitors are having that very same discussion. My guess is that won't bode well for differentiating yourself and you'll be competing against some big players. As Jane Fraser, president of Citigroup says, “Banking has changed irrevocably as a result of the pandemic. The pivot to digital has been supercharged.”
But, what other options do you have?
You could stick to the "high touch", nostalgic approach, and be the outlier without a strong digital strategy. Or perhaps you consider something a little outside of the mainstream. Something only about half of institutions are even curious about. Cannabis banking.
I'll bet you just thought 'Yeah, maybe if it wasn't illegal'.
Yes, cannabis is illegal at the Federal level. However 33 states currently have some form of legal cannabis business and 5 more are coming up for vote soon. There are banks across the country with active cannabis banking programs who have successfully made their way through examinations.
As a matter of fact, if you're in a legal state, you probably already have cannabis deposits on your balance sheet. It might be a landlord renting space out to a dispensary or warehouse. It might be an employee of a cannabis related business who's been an existing customer for years. What about the Electrical Supply company who has been a loyal small business for years who now has a whole division focused on supporting growing operations?
Avoidance of decision making around the topic is not a good strategy. Part of your planning discussions this year should be deciding on your strategy around cannabis banking. Monitoring and closing accounts may be the least risky, but it won't help with deposit growth. With that said, there are a few different strategies to consider to help shape your institution's policy:
- Tolerate - you are aware of some account behavior and ownership that appears to be cannabis related. You are monitoring accounts and making your best guess on the type of SAR to file. This keeps those deposits on the books. However, you may miss accounts that need monitoring - or file the wrong type of SAR - which puts you at risk for regulatory scrutiny based on lack of understanding around the industry and your account holder's behavior.
- Indirect Only - you choose to bank only accounts that are indirectly tied to the cannabis industry. The electrician, the accountant, the landlord, but no business that has direct access to the plant. Slightly more active than the 'Tolerate' approach, this will again keep the existing deposits on the books and may position your institution to pick up an extra account here or there that has been closed by a competitor who does not have a program. Having a policy that defines this program strategy along with procedures to monitor and properly file will help with examiners if you've got the right pieces in place.
- Direct-Stealth - you choose to quietly bring in direct cannabis deposits and set up a program that clearly defines that you'll bank these businesses - even those that have direct access to the plant. You'll put due diligence, monitoring and filing practices in place to satisfy examiners. With this strategy you will be able to throttle the amount of deposits you bring in, approaching cannabis businesses only when you are ready to open accounts. The question then becomes, will the examiners be happy with your efforts? If you've educated yourself around the industry and what examiners are looking for - and have a strong program in place - you will likely be on solid ground while creating a source of deposits and revenue for your institution.
- Direct-Pursue - you are educated, prepared and confident in this line of business, have put adequate time and resources into the program, and will be actively pursuing relationships with cannabis-related businesses in your market. Bring on the deposits and the revenue! With this approach you absolutely need expertise to get you up to speed, automation around monitoring, and scalability as the program grows. If not, you will erode your profits, and examiners will take issue with the effectiveness of your program.
There's a lot to consider, but wouldn't it be nice change of pace to think of the Compliance team as revenue generator? Let's start a conversation around the costs and opportunities.
We have a proven track record of working with financial institutions across the country to launch and scale compliant cannabis banking programs. We focus on regulatory compliance, and operational efficiency so that our clients are able to grow low-cost deposits, increase fee income and provide necessary services for small businesses in their community.
Want to quantify the opportunity for your institution? We're happy to take you and your team through a financial modeling workshop.