Legal Cannabis Banking: Not If, but How

Last week the Senate Banking, Housing and Urban Affairs Committee convened its first-ever hearing on the issue of cannabis banking. The hearing was largely focused on the SAFE Banking Act, legislation that would protect financial institutions from federal prosecution for serving marijuana-related business (MRBs) in legal cannabis states. With 95 percent of the US population living in states with some form of legal cannabis, passage of federal legislation would be a defining moment for the financial services and cannabis industries.

The Senate hearing provided a timely backdrop for the National Cannabis Industry Association’s (NCIA) Cannabis Business Summit which also took place last week some 3,000 miles away in San Jose, California. The consensus of the many people I spoke to at the event is that passage of some form of federal cannabis banking legislation is inevitable. The question is when. GOP support is critical to passage of the bill in the Senate, and only one Republican member of the committee – Chairman Mike Crapo of Idaho (who represents one of the few remaining illegal cannabis states) – was present at the hearing. A companion bill passed out of a House committee in March, but a floor vote has not yet been scheduled in the Democrat-controlled chamber.

Yes, these bills would protect financial institutions from federal prosecution, but as a high-risk industry with decades of black-market legacy funds, the AML and BSA risk for financial institutions serving this industry is extremely high. Compliance is a complicated and difficult task and doing it accurately and as efficiently as possible is paramount. Even with federal protection, FinCEN will have to continue to provide regulatory clarity. In turn, financial institutions must adopt compliance, risk management, and operational best practices that enable them to serve MRBs safely, compliantly, and at scale.

At the conclusion of the hearing, Senator Crapo acknowledged, “The case has been made pretty strongly to get cannabis banking issues resolved. This is an important and complex issue we need to get right.” For banks and credit unions considering serving this industry, now is the time to start evaluating and adopting compliance and operational best practices. Competition for new customer relationships and access to valuable, low-cost sources of deposits offered by MRBs is only going to intensify as pressure mounts on Congress to pass cannabis banking legislation.

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