Noteworthy Findings from the BankersHub and Emerging Markets Coalition Cannabis Survey
November 8, 2021
BankersHub (a leader in online Financial Services education) and the Emerging Markets Coalition (EMC) (a member-driven advocacy and educational organization for financial services in highly cash based and underserved markets) recently issued findings from their joint survey on Cannabis banking.
BankersHub and EMC surveyed a sampling of banks and credit unions nationwide to identify their challenges, concerns and experiences with banking Cannabis related businesses. The survey resulted in a number of fascinating findings, some of which we highlight here along with our thoughts.
Primary Hurdles in Cannabis Banking
According to BankersHub and EMC, participants in the survey, whether or not they bank Cannabis, expressed their top priority is to avoid “painful compliance and business mistakes.” Regulatory, compliance and operational challenges are a primary hurdle keeping many institutions from banking Cannabis. Those same challenges exist for those banking Cannabis. Specifically, the survey participants that do not currently bank Cannabis business indicated that the primary hurdles to doing so include BSA/AML risks, compliance challenges, product illegality, board objections, increased scrutiny, regulations, overhead costs, education/training and archaic banking systems. For those that currently bank Cannabis, primary hurdles include regulatory concerns, increased regulation, monitoring local/town ordinances, cash flow management, managing access to Fed services (ACH, Wires, etc.), education/training and business considerations such as profitability and fees and competition once fully legal.
Need for Education and Experience
As state legalized Cannabis is relatively new, the survey highlighted that many within the financial services industry understandably do not have deep and long term experience banking the Cannabis industry. In fact, the survey found that 44% of the respondents that bank Cannabis businesses had less than 3 years experience doing so whereas “half of the respondents banking Cannabis have been involved for 3 or more years.”
Likewise, because much of the Cannabis industry cannot get access to banking services, Cannabis businesses generally do not have significant experience with being banked. Therefore, the survey results noted the importance of education on both sides to understand the other’s business needs, regulatory requirements, compliance drivers and challenges.
Satisfaction with Cannabis Business
Despite the challenges, among the survey participants who bank Cannabis, satisfaction with doing so seemed good in certain ways, although less so in others. When asked about their organization’s level of satisfaction with Cannabis customers and their expectations for increasing their Cannabis-related customers through 2022, the average score was 3.8 and 3.5, respectively, out of a possible 5 (highest score). However, when assessing monthly fees charged to Cannabis customers compared to fees charged to other business customer types, the average score was only 2.8 out of 5. BankersHub and EMC note this lower score may indicate “offset pricing for increased risks, tracking and reporting, compliance monitoring and operational changes.”
Cannabis Industry Growth
In their survey Webcast, BankersHub and EMC provided a number of interesting estimates from various sources about Cannabis industry growth, including: 1) the estimated market value of legal marijuana by the end of 2025 is $146.4 billion (Grand View Research 2020); 2) by some estimates, Recreational and Medical cannabis sales in 2025 will outperform sales of craft beer, the global opioids markets, and over the counter first aid and sleep aids; and 3) the cannabis industry is estimated to generate an additional 250,000 full time jobs between 2020 and 2024 (Marijuana Business Factbook 2020).
There continues to be challenges and opportunities for financial institutions related to Cannabis banking. The challenges include determining whether they have the risk appetite, compliance controls, governance structure and appropriate oversight to provide services to any Cannabis related businesses, whether legal or illegal under federal law.
With the estimated growth of state legalized Cannabis sales, there are business and revenue opportunities for financial institutions if they determine that banking Cannabis related businesses falls within their risk tolerance levels. Of course, if a bank chooses to provide banking services, it must, as with any high risk business, implement a governance structure and board approved compliance program that appropriately identifies, mitigates and manages the risk, facilities the institution’s adherence to all applicable BSA monitoring, investigation and reporting requirements, communicates exposures for managerial action and ensures the activity and program aligns with the board’s risk acceptance criteria.
Not surprisingly, the survey indicated that Cannabis businesses are more likely to trust their banking to institutions that have “better knowledge of Cannabis business.” So, education is key to understanding the business, to developing an appropriate compliance, risk and governance structure and, if a financial institution is so inclined, to attracting Cannabis business.