Challenges and solutions to banking marijuana-related businesses

Banking marijuana-related businesses (MRBs) comes with unique compliance challenges. My company, Hypur, was founded to meet these challenges and make this process easier and more secure for everyone involved.  Hypur is a compliance and payments software company currently assisting credit unions across the country to responsibly, transparently, and profitably service MRBs.  From our first hand experiences, we’ve seen the obstacles that these institutions face and what tools they need to overcome them.  (For purpose of this article, keep in mind that compliance challenges and obstacles doesn’t refer to federal marijuana and associated banking laws; that’s an entirely different issue that I address here).

1) Resources.  Many financial institutions assume that serving the marijuana market requires hiring and training additional compliance personnel.   This at a time when compliance is already consuming a significant amount of institutional resources.

What is the Hypur solution to this problem?  Our technology enables credit unions to automate many of the manual processes associated with banking MRBs.   This automation is vital because MRBs are far more complicated than your standard commercial customers.  From document and license management, to transaction monitoring, enhanced due diligence, and federal reporting requirements, MRBs impose obligations on credit unions unlike any other industry.  This means that credit unions serving MRBs cannot afford the deficiencies of error prone manual processes.  Automation is the surest way to reduce and eliminate these deficiencies.  

Automation doesn’t mean removing the human aspect of compliance, but enhancing it.

The credit unions and its management are still responsible for meeting all applicable state and federal regulations for marijuana banking.  But by partnering with Hypur, financial institutions can perform compliance at a higher level without adding to their compliance budget.  With Hypur, compliance goes from being a revenue drain into a revenue driver.

2) Transaction Monitoring.  Most states that have legalized marijuana require that licensed MRBs provide inventory and point-of-sale (POS) data to the state’s “Track and Trace” system, which tracks every marijuana-related product from inception until it’s sold.  

This requirement is necessary in providing the state with real-time information to ensure MRBs are operating in compliance with federal policy and state law.  But just as it’s necessary for the state to constantly  monitor marijuana commerce, so too must financial institutions have this same information in satisfying their own compliance obligations.  The problem is that legacy compliance technologies are not capable of obtaining real-time POS information, meaning suspicious transactions are detected only after they have occurred.

What is the Hypur solution to this problem?  Our Application Program Interfaces, or APIs, enable POS systems to integrate into the Hypur platform and provide real-time transactional information to our financial institution partners.  This e financial institution to set parameters around all MRB transactions, and thus control what money does, and more importantly what does not flow into their institution.  

For example, a credit union could decide that it never wants its MRB customers to conduct a certain volume or dollar amount of transactions on a daily, monthly, or annual basis.  Any transactions that would exceed those limitations would be blocked from happening.  From a banking compliance perspective, the best kind of suspicious transaction is one that never occurs.   Giving credit unions the ability to proactively prevent suspicious transactions is the Holy Grail of compliance.  

3) Following Federal guidance.  The 2014 Cole (DOJ) and FinCEN memos remain the starting point for all marijuana banking compliance.  But certain aspects of these memos have proven to be challenging for credit unions, such as preventing revenue from the sale of marijuana going to criminal enterprises, gangs, and cartels.  

This requirement poses the following dilemma for credit unions – when their MRB customer attempts to make a cash deposit, how does the credit union know that that deposit does not also include funds generated by, and going into, the pockets of gangs, cartels or other criminal enterprises?

What is the Hypur solution to this problem?  Expected Cash Reports, which show financial institutions exactly how much cash was transacted by their MRB customer on a daily basis, and thus how much cash to expect at deposit.  For example, if the credit union’s expected cash report is $5,000 in validated cash transactions, and their MRB customer attempts to make a cash deposit of $10,000, the credit union knows something suspicious is happening and can refuse to accept that cash.

4) Marijuana as a cash-based industry. As long as major credit card brands prohibit marijuana-related transactions on their networks, state-legalized marijuana is expected to remain primarily a cash-based industry.  This poses challenges for financial institutions, as cash makes it more difficult to monitor transactions and to meet compliance requirements.  

What is the Hypur solution to this problem?  We have devised an electronic payment application for marijuana transactions that enables account-to-account transfers and doesn’t rely upon credit and debit card networks.  Known as Hypur Commerce, this technology provides significant benefits to credit unions, merchants, and consumers.  

For credit unions, it offers an additional level of compliance, as they now have insight into their customer’s customer.  Hypur Commerce also makes MRBs safer, as they no longer have to serve as storage facilities for cash that are enticing to criminal elements.  Hypur Commerce also gives consumers the convenience of an electronic payment system that they can use on their smartphones to conduct marijuana-related transactions.

These are just some of the ways in which Hypur can solve the unique challenges associated with marijuana banking.   Hypur is here to help emerging industries like the MRBs obtain banking access by elevating compliance and transparency to new levels.     

If you have any questions, please email mailto:jvardaman@hypur.com.