Can a financial institution “Safely” bank Cannabis?”
It all depends by what you mean by safe. I am not trying to be clever, but hundreds of financial institutions are banking cannabis every day and there has been no federal regulatory recrimination for any of those institutions. Several state regulators have published guidelines and some states have passed safe harbors that prohibit state regulators from taking any action against a bank just for banking cannabis. This all is a temporary situation as we wait with bated breath for Congress to act and pass a “safe banking act” and give FFIEC the mandate to write the rules surrounding federal cannabis baking regulation.
Guidelines Are Coming
In the meantime, FDIC Chairwoman, Jelena McWilliams, has said in recent speeches that “while she cannot give blanket immunity to institutions banking cannabis, that bankers would be okay with regulators if they conduct due diligence that ensures licensed entities comply with state regulations and follow the 2014 FinCEN guidelines, including filing of suspicious activity reports (SARs).” However, when Federal regulation is eventually written-as past experience has taught us-we can anticipate a much more comprehensive regulatory apparatus around cannabis banking.
Cannabis Banking is Complex and Ever Changing
This does not mean a financial institution cannot bank cannabis in the meantime. What it does mean, in my opinion, is that they shouldn’t do it in an ad-hoc way. FI’s need to ensure that their cannabis customers are licensed, legal and remain legal with all local, state laws and evolving banking regulations. This is no easy and cavalier task. It requires enhanced due diligence and a program of controls, auditing, monitoring, record keeping, and oversight that is somewhat akin to banking the highest risk depositors like casinos. When federal regulation is written, I believe that regulatory scrutiny is going to be placed on all banks that do business in cannabis legal states to ensure they have no hidden, illegal or non-compliant cannabis business in their deposit portfolios.
Risk vs. Reward
The good news is that cannabis banking can be a significant profit center even after a safe banking program is set up. In our estimation, a good cannabis banking program should yield an additional 100 bps of spread after netting out all of the costs of implementation and ongoing management. The deposits will also be very sticky for financial institutions and early movers will benefit the most.
HDCS Had Created a Roadmap
Trying to figure out where to start with a cannabis banking program? Call us and we will provide a free assessment and action plan. We will also walk you and your team through our virtual data portal, which provides “soup to nuts” content on creating a safe, sustainable and successful cannabis banking program.
We would be happy to meet with you to understand your objectives and risk appetite and share our view of the best practices involved in establishing a safe and profitable cannabis banking program. Use this link to schedule a video conference at a time that is convenient for you and your team.
Alternatively, you and any team members are invited to attend our upcoming webinar on July 21st at 10 am MDT. Register here.