Cannabis banking myths and misconceptions

When making the decision to bank cannabis, a credit union must take into account an extraordinary number of factors, from market opportunity, financial goals, institutional risk, and staffing requirements to name a few. For most credit unions, this is an industry with which they are unfamiliar, so there’s a significant amount of research that goes into making that decision. If you’re the person that’s been tasked with putting together a report and/or making a recommendation to the Board you may run into some of these commonly repeated myths and misconceptions about banking cannabis:

• You can’t bank cannabis if your credit union is federally chartered
• You’ll lose members if they find out you’re banking cannabis
• You need to hire a full-time BSA officer for every 10 CRB accounts

You can’t bank cannabis businesses if your credit union is federally chartered

To start off with, we can quickly dispel this misconception because our foundational guidance document, FinCEN’s 2014 “BSA Expectations Regarding Marijuana-Related Businesses,” makes no distinction between state and federally chartered institutions.

“This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.”

Anecdotally, I’ve worked with far more financial institutions chartered by federal, as opposed to state, regulatory agencies. It’s true that some state-chartered financial institutions benefit from supplemental cannabis banking guidance/assurances issued by their respective regulatory agencies (California, Michigan, New York, etc.), but a financial institution’s obligations under the FinCEN guidance remain the same either way.

You’ll lose members if they find out you’re banking cannabis

I’ve yet to see this happen at any of the credit unions I’ve worked with. I think this is a reflection more of a financial institution’s outdated assumptions about reputation risk than their membership’s feelings about marijuana. I can understand where this comes from: many compliance officers have spent their entire career working diligently to keep cannabis money out of their credit union, but that institutional prohibition no longer reflects the way that Americans feel about marijuana. For instance, a recent Pew Research Study, “Americans overwhelmingly say marijuana should be legal for recreational or medical use” found that a clear majority (regardless of age, race, or political affiliation) are actually in favor of legalization:

“[An] overwhelming share of U.S. adults (91%) say either that marijuana should be legal for medical and recreational use (60%) or that it should be legal for medical use only (31%). Fewer than one-in-ten (8%) say marijuana should not be legal for use by adults.”

Additionally, we’ve looked at the call sheets of credit unions that we know are banking the industry and compared their membership numbers before they started banking cannabis businesses and after. In no case did we identify any credit union that experienced a statistically significant drop in membership following the credit union’s decision to bank cannabis. More often than not we see an increase.

You need to hire a full-time BSA officer for every 10 CRB accounts

This is a pervasive misconception that’s proven to be a powerful disincentive to financial institutions – often this “statistic” alone is enough to discourage a credit union from banking cannabis-related businesses. We’ve all heard stories of compliance departments swelling from one FTE to twelve in as many months due to the heavy overhead associated with running a cannabis banking program, and I don’t dispute that this has been the case for some credit unions; what’s up for debate is whether this is an absolute rule. Based on my experience, it’s not. For example, we currently work with a credit union where one compliance officer effectively manages a portfolio of dozens of cannabis-related businesses by themselves. So how does this credit union do it?

From what I know of these FTE-heavy programs they are commonly managed using tools developed in-house, usually consisting of a combination of reports exported from their core system and customer point-of-sale software that are fed into complex spreadsheets. Collecting and analyzing data this way is inherently time-consuming, but if you introduce technologies to automate this process then it drastically reduces the person-hours (and headcount) required to meet your obligations under the 2014 FinCEN guidance. 

The benefits of automation are immediately obvious: consider the time it would take to count the physical cash that makes up a $15,000 dispensary cash deposit by hand versus the time it would take to run those notes through a high-efficiency currency counter. Then consider the benefits associated with using a cannabis industry cash courier service that picks up and counts the funds on your behalf so you never need to handle the cash at all. Now extend that line of thinking to the other fundamental workflows involved in cannabis banking oversight: collecting documentation, monitoring transactions, verifying the legal provenance of cash, and FinCEN reporting. You may well already be using software to file your CTRs and SARs, and I doubt I’d be able to find someone that would willingly go back to filing them manually because those systems save time and reduce errors. Similar software exists for monitoring and verifying cannabis cash that can give your compliance officers back the hours they would have otherwise spent running reports and populating worksheets. Leverage automation and you can start banking cannabis without adding FTEs.

Conclusion

At the end of the day, whether or not your credit union decides to offer financial services to the cannabis industry is based on your evaluation of the potential risks and rewards associated with that line of business. When making your assessment I encourage you to take into account that some of the perceived wisdom about cannabis banking – particularly from those that say it can’t be done – are founded in assertions that don’t reflect the reality of the financial institutions I’ve worked with.