In the News... Takeaways for Banking the Cannabis Industry
As we reflect on the bank failures this past week, we understand from our conversations with bankers and cannabis operators there has been some concern and uncertainty. Fortunately, few, if any of our financial institution customers have balance sheets or a concentration of uninsured depositors that looks anything like that of Silicon Valley Bank. However, many operators have balances in their individual business accounts that exceed the FDIC insurance limit. As our bankers talk to their clients and explain why the risk is different, we are seeing the nerves of cannabis operators being calmed.
While there is indeed a need for bankers to actively communicate with clients about the safety of their financial institutions, there are some longer-term consequences that bankers serving this line of business should keep in mind. For example:
- Running a community bank or credit union just got more expensive. As some customers seek the perceived safety in larger banks, the cost of deposits will increase to retain and win clients.
- It is probably safe to assume FDIC insurance premiums will rise, increasing expenses.
- M&A activity is likely just around the corner, further consolidating competition.
What this means for current and prospective cannabis bankers:
- The efficiency of compliance operations will be vital to ensure relationships with cannabis businesses are profitable as other costs rise.
- Business clients, especially cannabis operators, know that their deposits are extremely valuable to banks and credit unions. Be prepared for increased pressure to pay interest on some deposits or lower service charges for your best clients.
- Examiners will have an increased focus on industry concentrations. Bank and credit union leaders will need to be clear from the boardroom to the frontline about their total appetite for cannabis banking, or any specialized line of business.