Questions to ponder before entering the cannabis banking marketplace

The mounting number of states legalizing cannabis may be prompting more credit unions to consider ways to serve the high-cash industry. Individual cooperatives have reported early success in partnering with legal cannabis businesses, which may inspire even more interest across the movement. 

Naturally, governance, risk and compliance (GRC) concerns will be top-of-mind for credit union leaders thinking through the viability of expanding into this young, controversial and fast-growing market. If your credit union is among those considering a move into cannabis banking, here are a few questions to work through with your teams. 

Which services are we uniquely positioned to provide?

Like any business, cannabis firms have a wide range of financial needs, from business checking and loans to deposits and payroll. Narrowing the possibilities for the products and services you’d most like to offer also narrows the scope of your risk assessment, and your overall risk.  

Are your BSA policies and procedures effective and proven?

High concentrations of cash are likely to trigger the need for more suspicious activity reports (SARs) filings, at least initially with new cannabis business clients. Look into your existing policies and procedures, as well as the credit union’s associated internal training strategy, to see how effective they are today. Can existing policies and procedures, and the staff charged with executing them, handle a potentially exponential increase in filing volume, at least temporarily? Do they have the proper training and knowledge to handle the volume effectively and efficiently? Credit unions are not required to file a SAR if it reasonably believes, based on its member due diligence, the transaction does not implicate a violation or a suspicious activity. So, filing needs may ease up after the credit union has amassed enough data to support a decision not to file during an otherwise SAR-triggering event. 

At a minimum, the credit union should plan a review of the effectiveness of systems around filing and monitoring SARs, large currency transaction aggregation reports, monetary instrument records, funds transfer records and large balance fluctuation reports. 

Which new policies and procedures will need to be developed?

Credit unions are expected to perform due diligence around a series of non-traditional areas when it comes to serving the financial needs of cannabis businesses. These include ensuring member businesses are preventing the distribution of marijuana to minors and that revenue from sales is not funding criminal enterprises. The Controlled Substance Act lists a series of offenses credit unions would be responsible for monitoring, which would call for either new or updated customer due diligence policies and procedures. Additionally, look into whether the credit union is prepared to adhere to FinCEN’s FIN-2014-G001, BSA Expectations Regarding Marijuana Related Businesses, and NCUA’s Regulatory Alert NO: 19-RA-02, Interim Guidance for Serving Hemp Businesses. Examiners will want to see internal controls and documentation of this adherence in the form of written policies and procedures. 

How well does your credit union adapt to change?

The cannabis industry is rapidly evolving with new rules, regulations and societal impacts. As your business members’ trusted financial institution, you’ll be counted on (by both members and regulators) to understand, perhaps even anticipate, market changes, as well as to help your members navigate them safely and soundly. Think through technology methods, such as a GRC platform for automating some of the more menial tasks so your risk and compliance teams can focus on managing risks, along with the more strategic implications of shifts in cannabis-market realities. 

This is by no means an exhaustive list of considerations to make before expanding into the cannabis marketplace. However, it can give you a good idea of your overall GRC readiness to do so. Researching the answers may even reveal more insights than you anticipate. Serving today’s business clients well increasingly depends on the cooperative’s overall approach to compliance strategy. Reexamining your GRC practices may open doors to even greater possibilities beyond the immediate consideration of expanding into cannabis banking.

Chuck Uguccini

Chuck Uguccini

Chuck Uguccini, CUCE, NCRM, is a Senior Compliance Officer for ViClarity US. He assists league partners and consulting clients and specializes in the areas of compliance and risk management. He ... Web: Details