“Cannabis: To Bank or Not to Bank….The HDCS, Inc. Solution.”
By Andy Montgomery
When I was the Chief Executive of a community bank, I used to evaluate all major decisions according to what I called the “Three R’s”.
Those R’s are risk, return and resources. Any person that thinks banks don’t take risks doesn’t understand banking. Bank management is all about taking calculated risk and trying to mitigate any adverse consequences of that risk. In my role as a bank CEO, I first had to ensure that my team, my board, and I all clearly understood any risk and ensure we had the ability to mitigate it. Next, I had to evaluate the return on investment associated with the risk to know if it was worth our efforts. Finally, I needed to know that we had sufficient resources to both mitigate that risk and produce the expected return.
It was with this in mind that we formed HDCS, Inc., which stands for Higher-Risk Deposit Compliance. As a bank CEO, I ordered the closing of our highest-risk depositors, which were at the time Money Service Bureaus. Despite the great fees and return that they were producing for our bank, I simply felt that we did not have the staff or controls in place to meet the regulatory requirements and, more important, achieve industry best practices. I know that many institutions are now facing a similar question as they evaluate banking higher-risk depositors like the Cannabis industry. Through HDCS, Inc., we are providing both the subject matter expertise and the resources to help these institutions understand and mitigate risks and realize this new source of deposits.
HDCS, Inc., in partnership with RLR Management Consulting, will provide comprehensive solutions to financial institutions that are interested in banking higher risk depositors. As you are aware, RLR Management is a venerable consulting practice that has provided regulatory guidance, institution evaluation, and best practices to hundreds of institutions over the past 25 years. Together with RLR, we will offer a banker-led and regulatory focused solution to Cannabis banking that includes:
- Comprehensive Policies and Procedures
- Enterprise Risk Management Evaluation
- AML/BSA/KYC Program Evaluation
- Technology Vetting
- CRB Vetting, Ongoing Inspection and Risk Assessment
- CRB Deposit Tracking and Risk Identification
- Line, Management and Board Reporting
- Bank and CRB Staff and Board Training
- Ongoing updates on all relevant changes in laws or banking regulations
- Introduction to Pre-Vetted Cannabis Related Businesses
- CRB Deposit Contract Negotiation
Research estimates that the legal Cannabis industry will represent approximately $50B in revenue over the next few years. It is anticipated that due to the risks associated with banking Cannabis, that CRB’s will continue to be paying banks healthy fees in return for basic banking services. The financial institutions that implement comprehensive best practices and stay in front of the current and anticipated regulatory requirements will benefit from zero cost liquidity and ancillary fee income. HDCS, in partnership with RLR Management Consulting, is uniquely qualified to help institutions apply those best practices and achieve those returns.
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Andy Montgomery is the Chief Executive and Founder of HDCS, Inc. Andy is a banking executive with nearly 25 years of management experience in the industry. Previously he served as Chief Executive Officer and Founder of Western Community Bancshares, Inc. and its bank subsidiaries in Utah and California. He also served as CEO of the North and West Texas community bank for BBVA.