Illinois: A Bellwether State for Cannabis Banking

By Noah Carey


With a swipe of Gov. J.B. Pritzker’s pen in late June, Illinois became the 11th state in the country to legalize recreational cannabis. Marijuana Business Daily projects that this program, which will launch Jan. 1, 2020, could generate up to $2.5 billion a year for the state in new revenue. It also poses a massive opportunity for financial institutions in the state seeking to boost their portfolios with new low-cost sources of deposits.


To serve this market safely and efficiently, financial institutions need to understand the risks associated with banking marijuana-related businesses (MRBs) and how to mitigate them while serving their customers’ needs. Recognizing that many banks are interested in, yet understandably cautious about serving this industry, the Illinois Bankers Association recently invited Shield Compliance to participate in a panel discussion to address these issues.


As I listened to the presenters, including our president and COO Tony Repanich, and spoke to those in attendance, it’s clear that interest in this space goes both ways. While many bankers are in fact thinking about this new market opportunity, many also want to know how not to bank the industry inadvertently. They want to know how to protect themselves from unwanted AML and BSA risk, and how to ensure that they are doing due diligence on their existing deposits and customer relationships.


How we advise banks is very similar to what regulators would say: know your customer and the source of their funds. Banks need to ensure that their policies are clearly linked to the requirements described in the guidance from FinCEN, and then make certain those policies are backed with established procedures and controls. If you find that legal (or illegal) cannabis dollars are flowing into your financial institution, you need to take steps to ensure you are managing your compliance requirements properly.


While we certainly understand why bankers may not want to take on this risk, it’s also important for them to understand the rewards of cannabis banking. As a nascent industry, banks have a rare opportunity to gain a real first mover advantage on new customer relationships. There are only a finite number of quality MRB accounts, and from a profitability standpoint, they are very desirable. These high velocity accounts command high fees, maintain high average daily balances, and are low-cost sources of deposits for the financial institution. These upsides can far outweigh the costs associated with compliance, particularly as acceptance of cannabis continues to gain momentum.


Shield and our team of cannabis industry experts are actively helping financial institutions across the county understand the cannabis banking business opportunity and how it can fit into the bank's larger strategy. This is not an easy business to serve, so there must be a clear connection to broader goals. We also help banks understand the risks and operational considerations, starting at the board level and down to daily operations.


With Illinois now the second state in the Midwest to legalize recreational marijuana (Michigan voters passed a referendum last November legalizing recreational marijuana), competition for the best MRB accounts is only going to intensify. Banks and credit unions should evaluate the risks and rewards associated with serving this industry and determine how they can best set themselves up for success in this new era of opportunity.



Based in Evanston, Illinois, Noah Carey is the founder and CEO of Shield Compliance.

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Cannabis Banking, Simplified.

Shield's purpose built compliance platform manages the risk, compliance and operational demands associated with banking in the legalized cannabis industry. With Shield's transactional and operational transparency tools, compliance officers are notified of non-compliant activity quickly. 

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