Trends & Research

Trends & Research

Access the power of data and objective insight. Data from various sources, including NEACH surveys and member interviews, is compiled and made available as white papers, case studies, articles, benchmarking, and industry reports to provide a snapshot of both the current and future payments landscape. 

Published on Monday, September 30, 2019

Building a Cannabis Banking Program

Imagine rooms of wall-to-wall cash. $1 million a day in cash. So much cash that there’s no room for all of it. It’s not a scene from the latest Netflix binge-worthy must-see series or Hollywood blockbuster, it’s the potential scenario for those who have a cannabis-related business—and nowhere to bank all that cash.

 

According to NBC News, in 2018, legal cannabis  was a $10.4 billion industry in the U.S., And the combined North American market is expected to reach more than $16 billion in 2019.[1]

 

Even with that incredible growth, the question remains: Why is it so hard to bank cannabis?

 

First, the obvious: It’s still federally illegal. Although as of June 2019, 11 states[2] (Maine, Vermont, Massachusetts, District of Columbia, Michigan, Colorado, Nevada, California, Oregon, Washington, and Alaska), have legalized cannabis for recreational use. Forty-six states had laws allowing or decriminalizing marijuana or marijuana-based products.[3]

 

Possession, distribution, or sale of cannabis still remains federally illegal. That means contact with money that can be traced back to state marijuana operations could be considered money laundering and expose a bank to significant legal, operational and regulatory risk.[4]

 

Banks may feel trapped between their mission to serve their customers’ needs and the threat of federal enforcement—so many of them avoid this lucrative market entirely. Those that do take them on often charge them hefty monthly account and transaction fees, in part to help offset the extra costs they incur by doing so.[5]

 

You can’t just bank any customer who comes in with big bags of cash and wants to open an account.

 

Technology is a great place to start; for example, regulation technology (RegTech) firms to work within the banking system’s compliance framework. That way, cannabis businesses and financial institutions can work together, anchored by technology. RegTech helps simplify compliance and reduce risk so financial institutions can focus on deposit growth.

 

Cannabis and banking have one thing in common: They’re both highly regulated industries. Several RegTech firms, including New England-based Green Check, have platforms that manage concerns such as onboarding and due diligence activities and transaction monitoring for financial institutions, and compliance management for cannabis businesses.

 

Technology can serve as a matchmaker of sorts: Small banks and credit unions are seeking deposits, and cannabis businesses are looking for a place to bank their cash and stay compliant.

 

Finally, there are signs of regulatory change: In July, the Senate Committee on Banking, Housing and Urban Affairs held a hearing regarding cannabis business’ lack of access to banking services.[6] As regulations evolve, it behooves FIs to consider the highly lucrative potential market, and the technology tools that can assist with it.

 

One thing’s for certain: the topic of cannabis banking isn’t dying down any time soon, and if FIs can find the right compliance solution, there’s a lot of opportunity in banking these customers. Join us at Innovating Payments, October 9-10, 2019, at the Hilton Boston Logan Airport, to take a deeper dive into what’s available today to make this a possibility for your institution.

 

 

 

[1] https://www.nbcnews.com/news/us-news/legal-marijuana-industry-had-banner-year-2018-10b-worth-investments-n952256

[2] https://disa.com/map-of-marijuana-legality-by-state

[3] https://www.warren.senate.gov/imo/media/doc/STATES%20Act%20One%20Pager.pdf

[4] https://www.aba.com/advocacy/issues/pages/marijuana-banking.aspx

[5] https://www.cnn.com/2019/03/14/perspectives/cannabis-businesses-banking/index.html

[6] https://www.forbes.com/sites/tomangell/2019/07/16/senate-schedules-hearing-on-marijuana-business-banking-access/#29a2e5554962

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Author: Meagan Norlund

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