The cannabis industry has been a steadily growing business in America as more states legalize medical and recreational marijuana. At the same time, credit unions have begun to see an opportunity to work this emerging industry and help it grow further.
According to FinCEN, at the end of 2020, 169 credit unions and more than 500 banks served cannabis businesses. While opportunities are out there for credit unions and cannabis, getting into this type of banking does come with some additional risk. I recently spoke with the Allied Solutions Senior Vice President Patrick Touhey about what credit unions need to know if they are considering cannabis-related banking.
One of the biggest concerns for credit unions considering cannabis banking is money laundering, Touhey advised. Cannabis is primarily a cash-only business, and in this environment, it’s critical for credit unions to be cautious in terms of the due diligence that is exercised to determine that their business members implement and practice high ethical standards.
The requirements needed to run a cannabis banking operation are substantial, particularly to be able to meet the heightened Bank Secrecy Act compliance which is much more demanding than the average BSA program. “It’s an education that involves so much more than what you would be doing with a standard relationship,” Touhey said. To comply, credit unions must ask questions such as:
- What does “knowing your member” consist of?
- What are the state laws?
- What are the laws set by the Attorney General and FinCEN?
The staff training that’s necessary to ensure compliance is both extensive and the most important piece of the puzzle even before any cannabis-related transactions can begin. Regulators are not going to look the other way if they spot something wrong with your program, especially when there’s a potential for money laundering.
Touhey pointed out, “There have been many products and services over the years that credit unions have gotten involved in that, at some point or another, may have caused financial strain on the credit union because they didn’t do their homework as much as they needed to.”
Yes, there are risks involved with cannabis banking, but it does come with some positives that can work incredibly well for your credit union in the long run.
- Income potential: Credit unions can always use more sources of income, and cannabis banking holds a lot of potential for that.
- Community safety: As long as cannabis businesses are forced to continue to work with only cash, if they don’t have a safe place to put that money away, there’s increased risk of robbery and violence. By providing a safe and secure place to store cannabis transactions, they are not only protecting their cannabis partners, but also protecting their community at large.
- Setting Up For The Future: Should cannabis become federally legal, interest in this industry is sure to spread across the country. By investing in serving cannabis businesses now, your credit union could be setting itself up for success in the future as the industry continues to grow.
Cannabis banking has its risks and challenges, but if your credit union behaves prudently and within the law, it can lead to great rewards. For more insights on this subject, watch my full conversation with Patrick, Room to Grow: Why the Cannabis Business Needs Better Banking.