April 21st, 2021

Cannabis Banking Series - Is Cannabis Right for Your Institution? - WST

Another 4.20 has come and gone, and for many institutions it means another year of puffing and passing the cannabis can down the road. A short blurb in your policy stating that you do not bank cannabis-related businesses (CRBs), a quick conversation during a board meeting, and that's that. However, unlike 4.20s of years past, 4.20.2021 was immediately preceded by the passage of the SAFE Banking Act by the U.S. House. Passed by the House in 2019, the Act languished in the Senate and was never brought to the floor for a vote. Under a new administration and following a shift in power within the Senate, cannabis advocates are more optimistic about legalization than ever before.

So exactly what does this mean for your institution? It means it's high time for a serious conversation about banking cannabis. While Federal legalization remains a question mark, if the cannabis industry and examiners agree on anything, it's that you are likely already banking cannabis. With passage of the SAFE Banking Act likely, the time to make a risk-based decision on this industry is now, and regardless of whether you decide to onboard cannabis, you should conduct a risk assessment and develop a policy.

Is cannabis right for your institution? There are no easy or clear-cut answers. As the industry continues to grow and normalize, risk will continue to evolve. Working through the process of creating a Cannabis Banking Program will be daunting, so our Certified Cannabis Banking Professionals have a few tips and talking points to help you along.

First and foremost, conduct a risk assessment if you have not already done so. Some less obvious items to consider within that assessment may include:

  • Regulatory health. What is your institution's culture of compliance? Have you received direct feedback from your examiners? Nationally, regulatory agencies have indicated that offering banking services is a risk-based decision; however, there may be subtle leanings in a certain direction within each region and increased scrutiny may not be for you.
  • Reputational risk. Is there a prevailing belief system with the communities you serve which could impact your image? If there is a strong pro/anti push in either direction, it matters - no customers equals no bank.
  • Competition. How are other financial institutions within your market engaging (or not engaging) CRBs? If your competitors remain risk averse, you may have a great opportunity to grow.
  • BSA/AML Program. How strong is your existing BSA/AML program and is there anything unique about your institution that would either give you a competitive edge or be disadvantageous? A strong BSA/AML program is a good candidate for expansion and effective management of a cannabis program.
  • Logistics. Can you "hit the ground running"? A long-term investment in staff and technology will be a necessity. The monitoring and enhanced due diligence expectations for cannabis are elevated, and the resources to effectively manage such are critical.
  • Cost benefit. The revenue potential is undeniable, but do you have the capital and liquidity to invest in and maintain a cannabis program? Deposits and contingency funding need to be considered along with concentration limits, and then there is always insurance…
  • Exit strategy. If you decide to offer cannabis banking services, do you also have a clear plan for exiting a relationship if your client violates your terms? Or worse, what is the plan if your program becomes unmanageable? A well thought out exit strategy will shield your profits and reputation from going up and smoke and enable you to dissolve a program on your own terms, because if an examiner is telling you how to get out - you are already baked.

    Ultimately, the decision to bank cannabis will be made by your Board and Board buy-in is tantamount to a program's success. Continue to educate your Board and, in turn, they will ensure staff have the technology and expertise to navigate whatever cannabis course your institution decides to blaze.

    Authored by: Crissy Yates, CCBP

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