Considering the Benefits and Risks Involved in Cannabis Banking

According to estimates, legal marijuana sales in the United States would increase 30% from last year to $92 billion in 2021 and reach $160 billion by 2025. Cannabis-related companies have a greater demand for regular banking products as the cannabis industry gets more successful. The current federal restrictions, however, make it highly dangerous for financial institutions to profit from this new clientele.

Recent events suggest that financial institutions may soon be authorized to accept MRB clients, including recommendations from Congress and regulatory bodies. But before moving further, banks need to be completely honest about the risk. They can then start to develop the compliance and other processes necessary to successfully negotiate the legal environment.

Cannabis Banking Dangers

There are methods to interact with in accordance with current regulations, even though the approval of the SAFE Banking Act would significantly reduce many of the hazards once connected to a bank account for a cannabis dispensary. Banks should be aware of the difficulties before entering the market, though. You can always use a cannabis payment processing provider.

Increasing Regulatory Compliance Efforts

According to the FinCEN guidance, banks must perform due diligence on MRBs, which includes asking state licensing and enforcement agencies for information about the company’s licenses and registrations and verifying those documents with the appropriate state authorities. The regulatory obligations in the states where they conduct business must be kept in mind by banks that have MRBs as clients.

Additional Personnel and Equipment

There will be a demand for more Suspicious Activity Reports (SAR). According to the FinCEN guidance, “Any state law that legalizes marijuana-related activities has no bearing on the requirement to file a SAR.” Banking operations involving marijuana must be disclosed because the federal government classifies the drug as a Schedule I substance. To deal with inconsistencies between state and federal legislation, FinCEN defines three unique marijuana-related SARs. With software that identifies questionable activity and watchlist screening, banks can automate a large portion of the BSA/AML process. Banks will still require a person in charge of submitting SARs and reacting to screening alerts.

Distinct Repository Techniques

Financial institutions that pursue cannabis banking should take into account a separate depository approach to distinguish MRB-related from that of non-MRB customers due to the potency of marijuana. By doing this, it is made sure that clients who are not MRBs won’t get currency that smells like marijuana.

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Cannabis Banking Benefits

For some banks, the advantages will outweigh the possible hazards due to the influx of cash into state economies and the necessity for institutions to manage the significant and increasing volume of MRB transactions.

The advantages for firms who are prepared to develop a solid MRB risk mitigation strategy could include:

Revenue growth

As the marijuana market expands, so does the need for banking services. In actuality, financial services are a must for MRB’s survival. Financial institutions that engage in cannabis banking may see a rise in revenue as a result of luring the cannabis businesses’ survival as clients. Financial institutions that accept MRBs as clients may establish new business relationships and grow existing ones. In the long run, this method might help banks increase their revenue and clientele.

Differentiation from competitors

Financial institutions have the chance to stand out from rivals in jurisdictions where cannabis is legal thanks to the cannabis sector. This has proven to be particularly true in states like Oregon, Colorado, and California where there is a significant presence of marijuana enterprises. 

This competitive distinction, though, can work both ways. Being affiliated with MRBs could not be a competitive advantage in some areas, therefore banks should think about their current clientele and service area before determining whether to pursue this business case.

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