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Do’s and Don’ts of Cannabis Banking

As usual, numbers shape many of the decisions financial professionals make.

When it comes to cannabis banking, the numbers matter. The American cannabis industry is projected to reach $72 billion by 2030, according to New Frontier Data. A market this large—and one that’s growing this fast—is hard for bankers to ignore.

The problem is that federal guidance and enforcement directs banks and credit unions to monitor a customer’s activity and periodically detail the results , such as illegal or suspicious activities, a process that can be both costly and time consuming.

Cannabis use remains illegal at the federal level, while it is legal in many states. As of now, 37 states and Washington, DC, Guam, and Puerto Rico permit the sale of cannabis for medical and/or recreational purposes. This makes for a legal muddle that some finance professionals have no desire to confront.

Financial institutions have shied away from the market even in states where cannabis use is legal because they fear landing on the wrong side of federal drug laws. As a result, it is estimated that less than 300 financial institutions offer banking opportunities to the cannabis industry.

Numbers like these represent a good news/bad news situation. The good news? The market is clearly underserved and therefore an opportunity. The bad news? Cannabis banking is complicated and few financial institutions are seizing the opportunities.

If your bank or credit union is asking whether the cannabis market is simply too attractive to ignore, here are some do’s and don’ts for your consideration.

A Few Do’s

  • Do be creative about follow-on products.

When weighing the pros and cons of cannabis banking, many financial professionals focus on low-cost deposits. Deposits are an enticement, of course, but perhaps even more compelling are the opportunities for offering loans and other follow-on products to an underserved sector of the small-business world.

  • Do think beyond dispensaries.

Cannabis businesses now extend well beyond cannabis dispensaries. There are also hemp and CBD businesses, or businesses that sell products that contain less than .3% THC, the active chemical compound in cannabis.

Banks also need to think in terms of Tier 1 medical marijuana suppliers, which include growers, dispensaries, and those who transport cannabis, as well as Tier 2 firms, or the law firms and accountancies that serve these Tier 1 businesses. Tier 1 and Tier 2 enterprises carry different levels of risk and compliance burdens.

  • Do carefully evaluate your existing BSA compliance capabilities.

For many financial professionals, the deciding factor in whether or not to enter the cannabis banking arena is the strength of an organization’s compliance function. Cannabis banking—just as banking any type of higher-risk group—means a greater compliance burden. Do you have the staff and/or compliance software tools to be successful?

  • Do prepare to defend your bank’s decisions.

Because the number of community banks and credit unions banking cannabis is so small, you may need to explain your decision to regulators and even to your customers. You should be able to articulate the rationale for your cannabis banking program to anyone asking legitimate questions.

And a Few Don’ts

  • Don’t skimp on KYC efforts.

Requirements for reporting on customers’ suspicious or illegal activities within a cannabis banking program can prove extensive. Financial institutions need to review a cannabis business’s license application and supporting documentation, but they should request available information from state licensing and enforcement authorities about the business and any related parties.

Financial institutions should also monitor publicly available sources for changes to the business and related parties.

  • Don’t make too many bets on future legislation.

The SAFE Banking Act, which passed the House of Representatives in February 2022, would make a tremendous difference for institutional risks of cannabis banking. However, the legislation has passed the house seven times thus far, and continues to struggle in the senate.

  • Don’t ever grow complacent about compliance.

Compliance for cannabis banking is a swiftly changing area. For this reason, financial professionals need to stay abreast of any and all developments.

As Venable LLP, a large law firm headquartered in Washington, DC, wrote in an article titled “Marijuana Banking in 2022: Lessons Learned and Best Practices”: “The board, management, and senior officers should monitor BSA/AML developments generally and any regulatory guidance or statements made with respect to cannabis banking and incorporate any lessons or best practices into its MRB [marijuana-related business] program.”

  • Don’t be overly concerned about reputational risk.

Reputational risk from cannabis banking is now arguably lower than ever before. While some individuals do take a moral or health stance against cannabis, support for legalization has increased over time. According to October 2022 research by the Pew Research Center, only 10 percent of Americans say that marijuana should not be legal.

Perhaps more to the point, nearly two-thirds of consumers (65%) support banks and credit unions offering banking services to cannabis businesses in states where its use is legal, according to a survey by the ABA.

Similar results were found by the Independent Community Bankers of America (ICBA) in 2022. ICBA found that 63 percent of voters agreed that allowing cannabis-related businesses to access the banking system would help improve public safety.


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