What Financial Institutions Should Consider When Launching a Hemp Banking Program
RiskScout’s Director of Compliance, Kristin Parker, recently had the opportunity to sit down with West Town Bank’s SVP of Hemp Banking, Ross Sloan, to discuss what financial institutions should consider when banking the hemp industry and what hemp businesses should know when seeking a bank relationship.
Q: In your opinion, what should FIs take into consideration when banking hemp, CBD and THC Cannabis?
A: While there are many things to consider, perhaps the most important considerations are wrapped around compliance. If a financial institution doesn’t get compliance right, they will not succeed in the cannabis banking space. Financial institutions should work to ensure their customers are compliant with requirements of the industry. Institutions should consider the viability of the customer by looking into their experience level and should evaluate whether the
business is surrounding themselves with credible advisors. As a financial institution, we also want to ensure that the services we provide are the right fit for the industry.
At West Town Bank, we want long term customers and strive to ensure we are serving business’s needs with the products and services we offer.
Q: In your opinion, what are the keys to launching and successfully running a compliant and profitable hemp banking program?
A: The keys to a successful hemp banking program involves an educated staff on this ever-changing industry, continuous regulator engagement, and a great partnership with compliance technology partners such as RiskScout. All financial institution staff need continuous education on the hemp industry; and teammates need open dialogue with each other to share best practices and lessons learned. Regulator engagement at program inception and as the program
matures is also a critical piece to a successful hemp banking program. Lastly, to have a sustainable and scalable hemp banking program a financial institution needs a technology partner to assist in the onboarding and ongoing compliance burdens involved in banking the hemp industry.
With RiskScout, we were able to grow our program substantially while keeping staff to a minimum.
Q: How do you stay abreast of the hemp industry rules, regulations and best practices to ensure you are banking legal and compliant businesses?
A: At West Town Bank we regularly look for opportunities for hemp industry experts to speak to our hemp banking team. Individually, we seek information by following hemp specific law firms, industry associations and RiskScout on LinkedIn among other resources.
Q: Would you consider all industries in the hemp space the same type of risk to an FI?
A: Some sectors do present more risk than others. For example, a grower could be considered riskier because of crop loss risk. Brick and mortar retailers are harder to bank because monitoring what is on the shelves for adherence to FDA and local, state and federal laws is difficult. That said, you must be careful about making a blanket statement of a certain level of risk to each segment. Know Your Customer is about understanding the individual business and its owners and key employees, not just understanding the sector they are in.
Q: If you had one thing a FI should know about what it takes to engage in actively banking hemp, what would it be?
A: It takes absolute commitment to understand the hemp industry and to continue educating yourself to understand changes in the industry in real time. Customers we serve in this industry expect us to know what is happening in the industry. We serve our customers better when we stay abreast of the landscape.
Q: What are some other considerations a FI should evaluate when exploring banking the hemp industry?
A: Financial institutions should start with ensuring that leadership (including the board) is supportive of a hemp banking program, otherwise it will not be sustainable. Institutions really need to consider investing in a third-party compliance partner, like RiskScout, to assist in the compliance burden of banking the hemp industry. Additionally, involving legal counsel that understands the industry is vital to the success of a hemp banking program. Lastly, financial institutions should understand that for the hemp industry to trust you as a bank, you must be open about banking the industry. Transparency is key to alleviating some of the anxiety in the industry around a financial institutions’ commitment.
Q: In your opinion, what would help other FIs feel more comfortable with the idea and execution of a hemp banking program?
A: The passage of the Safe Banking Act would likely help financial institutions feel more comfortable. As bankers we typically don’t deal well with ambiguity - we like some degree of certainty, and the Safe Banking Act would help some in that regard. There is also a good deal of education that needs to happen to help bankers understand the industry. Additionally, financial institutions will also be more comfortable when they understand they can have a robust compliance program and still be profitable.
Q: What should a business in the hemp industry typically expect when applying for an account at a hemp friendly bank?
A: It really depends on how strong the financial institution’s compliance program is as to what a business will have to provide. Some things are universal expectations including who is involved with the business, what their experience is in the industry, current product lists, future plans of the business and proof of how they are ensuring they stay in compliance with local, state and federal laws.
Q: If you had one thing a business should know about what it takes for a bank to engage in actively banking hemp, what would it be?
A: We hope that our hemp business customers understand that financial institutions have to put a lot of time, money and effort into banking any hemp business. We need their help to achieve all of our compliance requirements. We ask businesses to really understand that we are not being intrusive, we simply need to ensure our customers understand the industry and what it takes to be compliant. A good communication line between the business and the banker is key to a successful and compliant banking relationship.
Q: What are some important questions a hemp business should ask and evaluate when choosing a hemp friendly bank?
A: The business should be asking if the financial institution truly has a hemp banking program. If not, they may be talking to a well-intentioned banker who does not have the backing of their institution. If the institution does not have a formalized hemp banking program, there is a good chance the relationship will not last.
Q: How often should a business typically expect to hear from their FI regarding compliance follow-ups for things such as licensing updates, THC testing results, etc.?
A: It really depends on the sector of the industry, as risks are higher at different times within sectors. Hemp businesses should be prepared for their financial institution to follow up with them at least annually and in some cases much more frequently.