Banking Cannabis Demands High-Level Compliance Scrutiny

By Mike Kennedy

While cannabis remains illegal at the federal level, more than 30 states have legalized retail sales through medical and/or recreational programs. Regardless of political, personal or moral stance, it’s difficult for anyone to deny the very real momentum generated by the emerging legal cannabis industry. U.S. legal cannabis sales reached $10.8 billion in 2018 and continue to grow at a compound annual growth rate of over 20 percent. This meteoric rise in a few short years shows no signs of slowing down, as U.S. demand for cannabis continues to outpace state-sanctioned cannabis programs. Despite such impressive figures, there is one significant hurdle holding this industry back: the lack of access to banking.

In those very same communities where legal cannabis businesses are thriving, you can find countless banks and credit unions feverishly looking for low-cost ways to grow deposits, non-interest fee revenue and additional lines of business to remain competitive. These financial institutions see the cannabis businesses in local areas as a perfect example of a lucrative “unbanked market segment” that many CEOs can only dream of as a customer base.

Even with this crystal-clear opportunity for both sides to fuel their business’ growth, many banks and credit unions are reluctant to offer services to the legal cannabis industry because they fear that without federal guidelines they won’t be able to do it properly — or cost effectively. While over 400 financial institutions have reported dealings with legal cannabis businesses to FinCEN, it remains clear that protection at the federal level would allow countless more institutions to develop more robust product and service offerings specifically for this rapidly-growing industry.

Those hoping to see a change in the way cannabis is classified under the Controlled Substance Act should not hold their breath. However, a change in Congressional leadership has led to the recently conducted first hearing on a topic long discussed on Capitol Hill: protections for financial institutions that wish to serve legal cannabis businesses.

A draft of the bipartisan SAFE Banking Act of 2019, introduced by Reps. Ed Perlmutter, D-Colo., Denny Heck, D-Wash., and Ohio Republicans Rep. Steve Stivers and Rep. Warren Davidson, is beginning to gain some momentum. Written with input from banking and cannabis industry stakeholders, this legislation addresses some of the most pressing issues holding financial institutions back today. It outlines clear protections around federal deposit and share insurance, asset forfeiture restrictions and expectations on institutional liability. The draft legislation stipulates that the Federal Financial Institutions Examination Council must produce uniform exam procedures for agencies examining institutions serving the legal cannabis industry no later than 180 days after its passing.

Source: Federal Reserve Bank of Kansas City — Denver Branch

The hearing by the House Financial Services Committee’s Subcommittee on Consumer Protection and Financial Institutions on Feb. 13 gave indicators that while this is moving ahead conversationally, there is still significant work to be done at the committee level, let alone legislatively. The key words “entertain” used by Chair Maxine Waters, D-Calif. — and the constant use of the word “legitimate” — mean the conversation about opportunities for state- chartered banks could come in the future but that there will be a whole host of added rules and regulations on top of the existing FinCEN frameworks. The awareness of opening the banking system to illicit cash is the great concern. Compliance, not just conversation but the actual demonstration of its occurrence, from both the cannabis-related businesses and financial institutions, will be ratcheted up to a whole new level via changes that evolve starting now.

The team at Green Check Verified is comprised of technologists, compliance officers and former regulators and examiners from both the banking and cannabis industries. Together, along with the help of our partners and industry stakeholders, the firm has built a web-based compliance management system to assist financial institutions and those cannabis business customers manage risk and compliance more effectively. Green Check is intimately familiar with the impact regulatory change has on institutions while local, state and federal guidelines continue to change and grow with the times, and remains optimistic about the future of cannabis banking in 2019 under the current structure. 

Mike Kennedy is director, product strategy at Green Check Verified. He has first-hand experience helping financial institutions with high-risk accounts including cannabis. For more information, visit

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