Building a Resilient Cannabis Banking Program

Introduction: Navigating the Complex Landscape of Cannabis Banking

As cannabis becomes more widely legalized across the U.S., financial institutions face a growing demand for specialized banking services for cannabis-related businesses (CRBs). Building a resilient cannabis banking program involves more than simply offering services—it requires navigating a highly regulated environment while ensuring the program’s financial viability and sustainability.

In this blog, we’ll explore critical insights shared during a webinar on cannabis banking. Experts Chris Van Dyck from Cogent Law and Danielle Boyle from Dart Bank discussed essential elements for building a successful cannabis banking program.

The Importance of Board Buy-in

A strong cannabis banking program starts at the top. Board support is the first and most crucial step. Without it, a program in this high-risk space may encounter significant challenges. The board needs to be educated on the risks, regulatory complexities, and potential rewards of entering the cannabis banking space.

Danielle Boyle, from Dart Bank, shared valuable lessons from their experience. Despite being a smaller community bank, Dart Bank built one of Michigan’s largest cannabis banking programs. By focusing on the underserved market and aligning the board’s vision with long-term goals, they set the foundation for their program’s success.

Assessing the Risks vs. Rewards

Cannabis banking isn’t for the faint of heart. There’s a fine balance between risk and reward. While cannabis remains a federally illegal substance, the opportunity for growth is significant as more states legalize cannabis. Financial institutions can benefit from fees generated by deposits, lending, and cash management services tailored to cannabis businesses.

However, financial institutions must be prepared to manage the risks, such as legal uncertainties and reputational concerns. By understanding the risks and ensuring proper compliance systems, institutions can access a growing and lucrative market.

Building Operational Capacity for Success

Once the risks and rewards are assessed, the next step is ensuring that the financial institution has the operational capacity to manage a cannabis banking program.

Danielle and Chris emphasized the importance of having robust infrastructure to manage the complexities of cannabis banking. This includes:

• Hiring the right staff to handle increased workloads
• Implementing technology to track seed-to-sale data
• Using compliance software to monitor suspicious activity and stay compliant with regulations

Dart Bank’s success was partly due to their early investment in operational capacity. Ensuring the right team and tools were in place allowed them to effectively manage their cannabis banking clients.

Compliance and Regulatory Considerations: Staying Ahead of the Curve

Compliance is the foundation of any cannabis banking program. Even though cannabis is illegal federally, regulatory guidance such as the FinCEN memo provides a framework for banks to safely operate in this space.

Chris reassured the webinar audience that while cannabis banking involves risks, the chance of federal prosecution is remote due to the public policy support for cannabis legalization. However, banks must ensure compliance with federal and state regulations, including:

• Enhanced due diligence on clients
• Filing Suspicious Activity Reports (SARs)
• Ensuring that all financial activities comply with the Bank Secrecy Act (BSA)

Pricing Cannabis Banking Services: Finding the Right Balance

Pricing cannabis banking services is challenging. Danielle discussed how financial institutions must balance competitiveness with sustainability. While it may be tempting to undercut competitors to attract clients, the pricing must be sustainable in the long term. Offering lower-than-market fees might seem like an attractive proposition for cannabis businesses, but it could jeopardize the financial viability of the program.

When developing a pricing strategy, it’s essential to consider all the costs involved, such as:

• Compliance software
• Staffing
• Risk exposure

Financial institutions must ensure that the pricing covers all operational costs and leaves room for profitability while remaining competitive in the market.

Building Strong Relationships with Cannabis Businesses

Beyond risks and compliance, financial institutions must build trusting relationships with cannabis businesses. As mentioned in the webinar, building strong relationships is key to establishing long-term partnerships in the cannabis space.

By offering personalized support and understanding the unique challenges of cannabis-related businesses, financial institutions can create strong bonds with clients. This approach fosters trust, loyalty, and ultimately business growth.

Conclusion: A Long-Term Strategy for Success

Building a resilient cannabis banking program is a long-term commitment that requires careful planning, adequate resources, and a clear strategy. The key to success is ensuring that your program is:

• Sustainable
• Compliant
• Built on strong relationships

While the path may have obstacles, the opportunity to serve a growing and dynamic market is immense for financial institutions that take the right approach.