I recently attended the 7th Annual Cannabis Banking Symposium sponsored by the Association for Cannabis Banking (ACB) and The National Association of State Credit Union Supervisors (NASCUS). It was a great opportunity to get a sense of the current state of the industry from the perspective of our members, and I want to share my key takeaways:
✅ Banking is a not just a compliance decision, but a strategic decision.
A major theme throughout the event was that a successful cannabis banking program begins with a top-down strategic decision. It requires full institutional buy-in, starting with the Board of Directors defining the institution's risk appetite. It's also critical to have a clear understanding of the market and the institution’s own objectives, whether they are focused on deposit growth, lending, or fee income.
✅ The regulatory landscape is a pain point.
The confusion around the current FinCEN guidance is a major pain point for financial institutions. The industry is anxiously watching the SAFER Banking Act because its passage could provide a safe harbor for FIs and potentially pave the way for major card networks to reconsider their policies.
This is why the payments side is so challenging. Because cannabis is federally illegal, card networks and modern payment rails like ACH, FedNow®, or RTP® are not widely available, forcing many Cannabis Related Businesses (CRBs) to rely on cash or other alternative payment methods.
✅ Due diligence and auditing are the cornerstones.
Due diligence for CRBs goes far beyond standard Know Your Customer (KYC). It requires financial institutions to verify licenses, identify all beneficial owners and related businesses, and conduct ongoing negative news searches.
Operational audits are crucial for risk management. Banks are focused on making sure a CRB’s sales records align with their deposits, and that their cash handling and security are robust. Regulators, on the other hand, are primarily focused on public safety, looking at things like seed-to-sale tracking, product testing, and underage sales prevention.
The distinction was made between different CRB business models and risk tiers. Suspicious Activity Reports (SARs) related to marijuana are generally only filed for plant-touching businesses that handle cannabis directly (Tier 1), which is a critical detail for financial institutions to understand.
✅ Technology is a necessary tool, not a silver bullet.
FIs are struggling to manage the high volume of compliance tasks manually. The industry is looking to technology to aid with this as an add-on to their existing BSA/AML programs. These tools can help automate tasks like license verification and reconciling a CRB’s financial records with state-mandated tracking systems. A significant fraud risk is friendly fraud, where an accountholder disputes a legitimate transaction; ATM cameras are not sufficient proof to fight these claims.
These highlights provide a solid overview of the key topics and pain points discussed at the symposium. If you have questions or would like to discuss this topic more, contact me at 800-475-0585, ext. 1104.