3 Questions with Noah Carey
As more states implement legal cannabis programs and the federal government continues to introduce legislation related to cannabis banking and legalization, a growing number of financial institutions are taking steps to better understand this line of business and the advantages of investing in cannabis banking programs of their own. Here are a few questions we often get from prospective cannabis bankers.
1. Will financial institutions still need specialized compliance programs if the federal government legalizes marijuana?
In short, the answer is yes. The BSA/AML risk associated with serving cannabis-related businesses (CRBs) will not change significantly when Congress eventually passes marijuana reform legislation. Why? Because regardless of how cannabis is viewed at the federal level, financial institutions must continue to guard against legacy funds, a robust illegal market, and bad actors. While federal legalization or the passage of the SAFE Banking Act would provide greater regulatory clarity, we believe there are benefits for financial institutions to begin serving this market now, such as an early-mover advantage on new relationships and the revenue that can be generated from this line of business.
2. How can my financial institution manage the volume of cash handling required for banking CRBs?
While much of the cannabis industry still operates in cash, we are seeing growing acceptance and availability of payment processing and payroll services to help eliminate cash transactions. Shield has a wide range of integrated financial service offerings, including a partnership with Spence Labs, to help financial institutions extend their service model to CRBs. Electronic payment solutions also allow financial institutions to create new revenue streams as part of their cannabis banking programs. With continued margin compression, it has become even more important for banks and credit unions to seek additional sources of non-interest income.
3. What is the status of lending to this industry?
Most financial institutions initially enter the market to generate new sources of low-cost deposits and non-interest fee income. However, compliance and due diligence processes implemented on the deposit side can also be leveraged to mitigate credit risk. As a result, financial institutions seeking to gain a competitive advantage are increasingly looking toward lending as the next big opportunity in cannabis banking. Ultimately, the decision on the type and breadth of services that can be offered to CRBs relates to the level of risk the financial institution is willing to take.
Admittedly, this is a challenging industry to serve. However, by partnering with experts who can assist with implementing compliance technologies, risk management policies, and operational processes, banks and credit unions can manage the complexities and gain the financial benefits of cannabis banking.
Learn more about Shield's Cannabis Banking Solution ›
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