The cannabis industry is known for having passionate supporters, business owners, and customers who proudly advocate for their product and its benefits. So, does that mean you have to be “pro-cannabis” to bank cannabis-related businesses (CRBs)?
No. You just have to be “pro-access-to-banking.”
Community banks and credit unions are, by and large, founded on the idea that access to banking is vital to the health and well-being of their local areas. Cannabis banking reflects those values and extends the benefits of banking and financial services to legal businesses. Here's how:
Access to banking ensures cannabis businesses operate safely and legally. Cannabis-related businesses are often very cash intensive. In 2019, adult-use cannabis generated $7.4 billion in cash-only transactions. This is big business, and it carries a big risk. Large amounts of cash on hand can make these businesses and their employees targets and creates a public safety risk. Moving that cash out of a business and into a financial institution reduces risk, improves public safety, and protects employees by enabling them to be paid by check or ACH payroll deposit.
Thanks to strict reporting requirements, financial institutions are among the first line of defense against illegal activity. BSA/AML compliance for cannabis banking requires visibility and transparency into the everyday operations of a business and its investors, ensuring that shady characters don’t take advantage of legal businesses to launder illegal funds. Suspicious activity reporting, a central component of all cannabis banking programs, offers an immense benefit to law enforcement and aids in their enforcement activities.
As bankers, we want the businesses in our communities to operate in a legal fashion that keeps their employees, workplaces, and neighborhoods safe. Understanding how banking CRBs can be fully in line with the values and mission of the financial institution can help management make the case to board members who may have concerns about unsettled federal questions or potential risks to the institution’s reputation. But the fact remains that if you are operating in a state that has legalized cannabis, the need for banking exists, and providing it offers concrete benefits to your community.
A Financial Opportunity for the Financial Institution
In addition to making the case that cannabis banking serves your mission, there is also a business case for banking this industry. Demand for banking services currently far outstrips supply. For those ready to serve legal cannabis businesses, there will be a significant first-mover advantage. This includes access to low-cost deposits and non-interest income. Fee-based services, such as consumer and B2B payment systems offer additional opportunities to generate ongoing revenue. With the right technologies and processes in place to enable a robust cannabis banking risk management program, the new revenue generated from this line of business can offset operational costs and enable the financial institution to grow and scale efficiently. Finally, lending can be a source of earning assets that offer a yield premium for financial institutions.
Regardless of your personal views on cannabis, serving cannabis-related businesses can be part of the financial institution’s long-term growth strategy. It can help build and strengthen relationships in your community by providing a much-needed service that improves public safety and the lives of local business owners and their employees. And it can provide a path for growth and new revenue for your financial institution. What’s not to like about that?
This article originally appeared in CU Insight on July 22, 2022