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Spotlight Series: Tony Repanich, Shield Compliance

The CannaBusiness Advisory Spotlight Series features expert perspectives from Burns & Levinson clients and contacts who are blazing new trails in the cannabis market.

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This week we spotlight Tony Repanich of Shield Compliance, a compliance platform for banks and credit unions. As President and Chief Executive Officer, Tony leads operations and is the company’s principal product architect. Having served as a senior executive at a Washington State-based community bank for 25 years, Tony has in-depth knowledge of the banking industry and the regulatory and compliance requirements for high-risk industries. Today he brings that knowledge to financial institutions serving and considering serving the legal cannabis industry.

Shield Compliance was a bronze sponsor at Burns & Levinson Sixth Annual State of the Cannabis Industry Conference. Our nationally recognized conference convened experts and industry leaders to share unique strategic legal and financial perspectives on forecasted trends, regulations, M&A, investments, and more.

From your corner of the cannabis industry, what's the single greatest challenge right now?

One of the most challenging issues facing the cannabis industry is access to banking and financial services. Not only is this a challenge to the cannabis-related business (CRB) owners and other participants in this industry, but it is also a challenge for banks and credit unions to serve these businesses while meeting the industry’s compliance requirements.

CRBs are often very cash intensive. In recent years, adult-use cannabis has generated more than $10 billion in cash transactions annually. 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 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.

Cannabis banking can help build and strengthen relationships in the 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 financial institutions.

Stability at the Federal Level

While progress towards federal legalization is eagerly anticipated, the lack of significant change in federal cannabis policy has fostered stability and predictability. Operating under guidance introduced in 2014 by FinCEN, federal regulators have gained significant experience working with banks serving the cannabis industry. This slow but well-worn path now provides a level of certainty for bankers.

Because each state has its own unique regulations and licensing requirements, however, vigilant monitoring is a must. Banks must have a clear line of sight into the individuals connected to cannabis businesses and ensure sales activity aligns with deposit activity. A robust compliance program, including monitoring, ongoing due diligence, and suspicious activity reporting (SARs), forms the foundation for serving these customers.

Technology that automates compliance tasks and aids in ongoing monitoring improves compliance outcomes while contributing to a better customer experience. As cannabis operators face increased competition and tighter margins, banks that minimize the compliance burden are gaining a competitive advantage.

How does your business solve issues related to this challenge?

Shield Compliance offers a purpose-built AML/BSA compliance management software solution that transforms how financial institutions manage risk, comply with regulations, and satisfy operational demands associated with serving the legal cannabis market. We look at the entire customer relationship lifecycle and offer a set of products that facilitate everything from new client applications and underwriting to daily compliance management and reporting.

Our platform sits behind the financial institution to simplify compliance and automate processes across multiple data sources. This allows banks and credit unions to create efficiencies, unlock new revenue, and scale their operations while owning direct relationships with their cannabis customers.

We like to say that Shield was created by bankers for bankers. Our deep knowledge of high-risk banking industries, like cannabis, is an advantage for our customers.

Tell us about a situation you've encountered that could only happen in the cannabis industry.

Early in my cannabis banking career, a CRB invited me to their business for a tour. Business owners are like proud parents, and client visits were one of my favorite parts of the job. As a banker, I would never visit a customer not dressed for business, so I put on my suit, tie, and wingtips and jumped into the car.

As I drove to the company, I began questioning my attire. Leasing options were even more limited back then, and this business, a cultivator and processor, was in what could best be described as an abandoned house.

As I walked in the front door, the look on the customer’s face was priceless. I just pretended I wore a suit and tie to the beach, and it was no big deal. Not unexpectedly, the owner wanted to show me every inch of the facility and probably every plant. We climbed up and down stairs and went from room to room.

I learned a lot and it was a great experience, but after I left, I am certain they laughed heartily about the guy in the suit. As for me, I kept thinking, what will I tell my dry cleaner?

If you could travel back in time by ten years, what would you tell your former self about the industry?

Ten years ago, Colorado and Washington became the first states to legalize adult-use cannabis. The legal cannabis industry was in its infancy and could be best described as the Wild West. Each passing year, as more states expanded their medical programs or legalized adult-use markets, it seemed like federal legalization was not far behind. I remember having conversations early on at Shield about how our business model would withstand legalization or passage of something like the SAFE Banking Act. Would we even be relevant?

Had I known back then what I know now, I would have told myself that there’s more time than I thought to do novel things in this industry because legalization will take longer than expected.

For example, early on, I looked at investing in a B2B payments platform for the cannabis industry. It takes time to gain adoption and acceptance, and I didn’t think we could make our money back. There’s been quite a bit of investment in consumer payment options, but even today, there hasn’t been a lot of innovation in the B2B payments space. Had we invested in something like this ten years ago, there would still be a need for it today.

I’ll end with a note to my future self. Despite the rapid growth of the legal cannabis industry, the illicit market is showing no signs of slowing down. Due diligence will remain central to banking this line of businesses, and regardless of federal status, the industry will require innovative and creative compliance solutions, especially as competition intensifies.

The Cannabis Banking Playbook

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This article was originally published on Burns & Levinson


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