It's 4/20 - Still Dazed and Confused? - WST

It’s 4/20 and our certified cannabis banking professional (CCBP) auditors love to use this day to refresh everyone on how the marijuana landscape has changed over the past year. While we historically reserve this day (or holiday as some refer to it) to update you, we monitor and attend training year-round to stay abreast of industry trends and relevant legislation. As the cannabis industry continues to grow, we want to share some of what we’ve observed over the last year with you.

On the legislative front, the SAFE (Secure and Fair Enforcement) Banking Act has passed the House seven times. You read that right, seven times! Several well-known banking agencies, such as the American Bankers Association (ABA) and the Independent Community Bankers of America (ICBA) have sent letters urging the Senate to pass the SAFE Banking Act, but to no avail. While the SAFE Banking Act will provide protections for financial institutions, develop structure for cannabis banking, and establish exam procedures, it will not make marijuana federally legal. The MORE (Marijuana Opportunity, Reinvestment and Expungement) Act has been passed twice by the House and would remove cannabis from the list of controlled substances, eliminate criminal penalties associated with individuals who manufacture, distribute or possess marijuana, take additional steps toward criminal and social justice reform, and promote economic development from the marijuana industry. Can you imagine a day where supporting a cannabis operation in your community might qualify for CRA credit? Holy smokes!

Other recent events of note in support of the cannabis industry, include:

• The President and several states issued mass expungements for marijuana convictions estimated to effect close to 2 million Americans
• Maryland, Mississippi, Missouri, and Rhode Island all legalized adult use of marijuana in 2022; however, a similar measure was voted down in Oklahoma just last month.
• New studies published by The Journal of Addictive Diseases released a 2022 survey where 90% of pain patients indicated their medical cannabis reduced or ceased their use of opioids.

As of the end of 2022, close to 800 financial institutions in the U.S. were offering some type of cannabis banking services. Many financial institutions have historically shied away from lending to cannabis related businesses (CRBs). However, if your institution is considering such, here are some risk management tips to consider for a cannabis lending program:

• Determine if you will be lending to direct CRBs (touching the plant) or indirect cannabis businesses (loan proceeds are used to finance cannabis related activities or funds from plant touching business revenues are used to re-pay the loan)
• Require the entire operating relationship to be at your financial institution to maintain the ability to monitor cash flows for BSA
• Consider that federal bankruptcy protections do not cover cannabis at this time, state laws will prevail
• Make sure you establish and understand acceptable CRB collateral. While cannabis is federally illegal, seizure of collateral remains a risk. The financial institution will want to establish strong guarantor strategies that include non-cannabis assets

To be blunt, while CRBs are becoming more prevalent, the need to establish risk management practices up front is crucial for cannabis banking at any level. Regulators are supportive of developing new programs but the requirement to comply with safe and sound banking practices is never waived. In loving memory of Tom Petty, this is not our last dance with Mary Jane.

To each his own on 4/20 - let's just all be careful out there!

Authored by: 10-D Compliance Team