Guess Which Banks Now Want Cannabis Clients? – Over 800 Banks File FinCEN Reports to Accept Marijuana Businesses

October 1, 2023 · Cannabis.net

Banking institutions are engaging in a competitive race to accommodate cannabis businesses in anticipation of forthcoming alterations in the federal classification of cannabis, as national data indicates. Although cannabis remains federally prohibited, a pivotal shift is on the horizon due to the U.S. Health & Human Services Department’s (HHS) recommendation to reclassify cannabis from Schedule I to Schedule III.

The National Organization for the Reform of Marijuana Laws (NORML) reports a notable surge in banking institutions actively seeking partnerships with cannabis businesses. This reflects a diminishing fear of potential repercussions.

According to quarterly data released by The Financial Crimes Enforcement Network (FinCEN), a United States Department of the Treasury division, more than 800 banks and credit unions have officially documented their affiliations with licensed cannabis enterprises with the U.S. government.

FinCEN’s latest report reveals that during the second quarter of FY2023, a historic 812 banks and credit unions have actively engaged with cannabis companies. This figure represents an unprecedented high since FinCEN began tracking such data.

This number represents a notable increase from the previous year when only 553 banks, equivalent to 11 percent of all U.S. banks, and 202 credit unions were identified as collaborating with cannabis businesses.

The report underscores that FinCEN issued guidance to clarify the expectations of the Bank Secrecy Act (BSA) for financial institutions looking to offer services to marijuana-related businesses (MRBs).

This FinCEN guidance has helped elucidate how financial institutions can deliver services to MRBs while remaining in compliance with their BSA obligations. Additionally, it ensures that the information furnished by financial institutions in BSA reports is aligned with federal and state law enforcement priorities. The complete report is available for download.

Categories of Cannabis Businesses as Identified by FinCEN

FinCEN’s 2014 Guidance outlines three classifications for describing a financial institution’s association with Marijuana-Related Businesses (MRBs) in Suspicious Activity Reports (SARs):

  • Marijuana Priority: In this classification, the financial institution provides financial services to an MRB, and its customer due diligence leads it to reasonably believe that the relationship is tied to one of the Cole Memo priorities or infringes upon state laws.
  • Marijuana Limited: This category signifies that the financial institution offers financial services to an MRB and, based on its customer due diligence, reasonably believes that this engagement does not involve any of the Cole Memo priorities or contravene state laws.
  • Marijuana Termination: This category comes into play when the financial institution deems it necessary to sever its relationship with an MRB to uphold the effectiveness of its anti-money laundering compliance program.

NORML Deputy Director Paul Armentano emphasized the critical nature of access to banks and other financial institutions for any industry’s safe, transparent, and effective operation.

He underscored that this necessity is particularly evident for players in the cannabis industry, especially smaller and minority-owned businesses, as well as the consumers they serve. He noted that these entities will continue to face significant impediments without improved access to credit and financing.

According to survey data compiled in the previous year by Whitney Economics, more than 70% of surveyed cannabis businesses identified the “lack of access to banking or investment capital” as their foremost challenge.

FinCEN’s March 2022 Marijuana Banking Update reveals a consistent upward trend in the number of banks and credit unions seeking authorization to serve cannabis businesses. According to the report, as of September 30, 2021, FinCEN received 219,097 Suspicious Activity Reports (SARs) featuring the specific phrases associated with Marijuana-Related Businesses (MRBs).

It’s worth noting that several of these SARs contain multiple key phrases, which explains why the individual figures for each keyword exceed the overall total. The report continues to elaborate on the breakdown of these SARs: FinCEN received 172,501 SARs from financial institutions using the ‘Marijuana Limited’ key phrase, 15,359 SARs from those employing ‘Marijuana Priority,’ and 42,791 SARs from institutions utilizing the ‘Marijuana Termination’ key phrase.

FinCEN initiated the provision of guidance to cannabis businesses back in 2014, aiming to assist banking institutions in navigating the challenges of operating within an environment where cannabis remains federally illegal.

What’s Prompting Banks to Change Their Stance

Yahoo! News recently covered the potential game-changing impact of the HHS recommendation to reclassify cannabis from a Schedule I to a Schedule III substance. This reclassification can reshape the cannabis industry and open up fresh prospects for banking institutions.

According to Richard Laiderman, former head of global treasury for VISA and Co-Founder and Chair of StandardC, rescheduling cannabis to Schedule III could potentially enable dispensaries to embrace credit card payments. If this shift occurs, credit card transactions may replace cash transactions, mitigating the risks and expenses associated with operating on a cash-only basis.

Robert Baron, a specialist in cannabis banking, emphasized the necessity for financial institutions seeking to engage with this industry to adopt risk management tools for assessing and overseeing cannabis businesses. He highlighted that StandardC’s business underwriting and monitoring tools are well-suited for fulfilling their obligations under the Bank Secrecy Act and customer due diligence.

The HHS recommendation to reclassify cannabis from Schedule I to Schedule III represents a historic milestone, marking the first federal-level initiative to enhance the safety of the cannabis industry for all stakeholders.

Conclusion

The evolving landscape of cannabis banking is undergoing significant transformation, driven by the potential reclassification of cannabis from Schedule I to Schedule III at the federal level. This shift holds the promise of providing newfound opportunities for financial institutions and enhancing safety, transparency, and efficiency within the cannabis industry.

As financial institutions adapt to serve this market segment, implementing robust risk management tools becomes essential to ensure compliance with regulatory requirements and foster a secure environment for all involved. The coming years will likely witness further developments and innovations in cannabis banking, marking a pivotal moment in the journey toward legitimizing and mainstreaming this burgeoning industry. (Full Story)

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