Cannabis is legal in 32 states and the District of Columbia and is on the ballot in several states this November (New Jersey, Mississippi and South Dakota to name a few). So why is there still no guidance for federally insured financial institutions to provide banking services to legal and licensed cannabis companies?
The issue isn’t with Federal Regulators. They need a mandate from Congress to write the rules on how to bank cannabis safely.
The issue isn’t the House of Representatives, which has passed H.R. 1595 the Secure And Fair Enforcement Banking Act or the SAFE Banking Act twice by an overwhelming bi-partisan vote.
The issue isn’t the even with the bulk of the Senate (according to reliable sources), which has the requisite votes to pass a Senate version of a SAFE Banking Act (S.1200).
But how do the federal regulators really feel about safe banking for State legal cannabis businesses? They want it. They have all sent letters in support of the legislation and urged its passage. They don’t like their member institutions being in a grey area and are anxious to write the rules to provide clarity. They are joined in urging the passage of a safe banking act by 34 Attorneys General and 16 State Treasurers.
So, until the two Senators change their minds or receive enough pressure they have to act, the heads of the regulatory agencies are hamstrung in guiding their member financial institutions. However, they have been given clues as to how they will regulate those institutions that are banking cannabis.
In several recent speeches, FDIC Chairwoman Jelena McWilliams has been consistent regarding her stance on cannabis banking stating that bankers would be “OK” with regulators if they conduct due diligence that ensures licensed entities comply with state regulations. While she can’t give blanket immunity to members banking cannabis, she is providing some direction to both regulators and member banks.
“Risk comes from not knowing what you are doing.” ~ Warren Buffett
Early Entry: Why Now?
Cannabis banking can be highly profitable by adding a new source of liquidity for lending and increasing your spread by a minimum of 100bps. Early movers can be selective and pick the cannabis related businesses that are ready for a banking relationship (100% legal and compliant business). Cannabis related businesses have a huge unmet need for banking services and will be highly loyal and open to additional offerings from your bank.
Currently, there are no regulators penalizing banks for simply banking the cannabis industry. The reason: the rules have not yet been written. This is good news for financial institutions who are or becoming early movers in the space. As long as they approach the industry correctly and identify it as among the highest-risk type of customers, these institutions can create a risk-focused solution that provides financial services safely and reap tremendous benefits in the form of an additional profit center with very sticky and loyal customers.
Whether you are already banking cannabis or considering your options, keep in mind that you do not want to bank cannabis in an ad-hoc way. Provide safeguards and a proper system of controls to thwart money laundering and illegal activity. Vet, monitor and know your cannabis related customers.
HDCS would be happy to meet with you and your team 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. We can also walk you and your team through our virtual data portal, which demonstrates our content for creating a safe, sustainable and successful cannabis banking program.
CEO I HDCS, Inc.