MARCH 2023
Photo: Justin Sullivan/Getty Images

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.

Is Cannabis Lending Part of Your Strategy for 2023?

The past year brought about significant change in the cannabis industry. According to the Pew Research Center, 43% of U.S. adults now live in an area that has legalized cannabis use. In an article published in Bank Director Magazine, Shield’s president and CEO Tony Repanich wrote about three trends bankers should watch in 2023.

One such trend is the emergence of lending, both directly to operators and indirectly to landlords or investors, as a critical component of the cannabis banking portfolio.

Lending to cannabis-related businesses provides an excellent opportunity for banks to generate new earning assets and gain additional yield. In addition to enhanced yields, cannabis banking programs continue to be net providers of low-cost deposits.

To help bankers better understand the credit and compliance risks associated with cannabis lending, Shield recently published a Cannabis Lending Guide. By understanding the risks and taking the appropriate measures to mitigate them, bankers can make informed decisions about lending to this industry.

Download the Shield Cannabis Lending Guide
“As one of the longest-running cannabis banking programs in the nation, partnering with Shield was one of the best decisions to strengthen our program. The Shield team is extremely knowledgeable and has been very helpful to us.”

Cynthia Lopez
BSA and Compliance Manager
Santa Cruz Community Credit Union
Facilitate Cannabis Payments with Shield Transact

Want to offer your cannabis banking customers a cashless payment solution, while also boosting fee income and creating stickier relationships?

Bankers now have an opportunity to generate new fee income and deepen their cannabis banking relationships with our merchant services offering: Shield Transact.

Shield Transact enables transparent debit card payments for legal cannabis purchases. Merchants benefit from a cannabis-friendly sponsor bank and the use of select debit networks to clear transactions.
Dozens of referral partners have now boarded hundreds of merchants who are processing over $20 million per month of PIN debit payments... and growing.
Join the ranks of banks and credit unions taking advantage of the Shield Transact Referral Program ›
Shield's Growth Continues

Since its inception, Shield has partnered with 60 financial institutions and monitored 5.6 million transactions including $25 billion in deposit volume. In 2022, Shield’s financial institution customers earned $24.4 million in non-interest income from service charges.
As of January 31, 2023, Shield's partner financial institutions have $754 million in deposit balances and $90 million in loans outstanding from over 4,600 CRBs representing more than 11,500 active cannabis licenses.
Learn more about Shield Compliance. Contact us today
Shield is a Gold Sponsor of the PBC Conference 2023, being held September 21-22 in Washington, D.C. We’re pleased to offer our clients and prospects a 25% discount on attendee passes for the event. Use the discount code 
PBC2023-Sponsor-25 at the registration link.
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Let Shield help your financial institution unlock the benefits of serving the legal cannabis industry. Schedule a demo today.
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