Confessions of a Cannabis Banker

Introducing myself as a commercial banker never carried the “wow” factor of other professions. When I add that I am a cannabis banker, everyone wants to learn more, and there is a lot to tell.

While I am an anti-money laundering expert, some might say that under the strictest definitions, I laundered more money than you could imagine.  How much? Billions. How did I do this?  I followed the United States Department of Treasury’s published guidance, and without objection from multiple Federal banking regulators.

I am no different than any other banker, providing the same services to the cannabis industry that my other colleagues would provide: bank accounts, checks, wire transfers, ACH settlements, cash pickups and change orders … except I did it for an industry that most banks have been unwilling to serve.

It is not what you do that makes you different; it is why you do it. Banking cannabis was important to me because I believe that society benefits from open and transparent banking. Today, banking for cannabis related companies is neither open nor transparent. This fact is the reason that it operates mostly in cash and in the shadows of the illicit market.

I am here to remove the veil and myths surrounding banking cannabis to promote systemic change to address this industry’s inequalities.

Background

One of my college classmates benefited from medically prescribed cannabis. Seeing this firsthand changed my view of the plant and drove me to learn more about its benefits. I became a cannabis enthusiast.  It was only later in life that I realized that I could positively impact the community and the cannabis industry by becoming a banker at a member-driven credit union, merging my values and compassion to benefit our credit union members’ community. I found my passion in solving systemic problems, the biggest of which were the difficulties that cannabis businesses have in obtaining sustainable banking.

Solving this problem became my mission then and remains my mission today. In mid-2013 I was determined to charter a cannabis-based credit union that would serve members, including medical marijuana companies and their employees. At that time, my mission met with scorn from my banking peers, and the cannabis-chartered credit union went nowhere. I was just a bit ahead of my time.

One short month later, on August 29, 2013, Deputy Attorney General James Cole issued a series of memos that became the basis for what would become transparent cannabis banking, and my mission took form. By October 2020, I had built and oversaw a cannabis banking program that serviced over 200 of the largest cannabis companies and processed over $3 billion in annual transactions. Not bad for a small credit union with only $100 million in total assets. Sadly, my institution could not handle the demand. We had to turn away applicants by the dozens. We simply could not absorb the business volume that came through the door. This capacity problem is worse than ever, dozens of banks and credit unions are needed to serve this market, yet most are unwilling to support this new market. The banker’s rationale remains virtually unchanged; “…cannabis cannot be safely banked until Congress legalizes cannabis“.

Dispelling the Myths

At this time, it is incumbent on me to clear up some myths about cannabis banking. Here are the facts that you can bank on:

Cannabis banking is permissible today, but most banks do not want to do it

The common perception is that banks can’t bank cannabis. This is just not true. In February 2014, FinCEN (a division of the U.S. Treasury that enforces anti-money laundering compliance) issued guidance that allowed financial institutions to serve the licensed cannabis industry (FIN-2014-G001). The regulation issued by the U.S. Treasury Department states, “This FinCEN guidance clarifies how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations.” Federal regulators that control what banks and credit unions do have consistently ruled that there are no restrictions that prevent an institution from banking cannabis as long as they follow the FinCEN guidance.

If this is the case, why is banking so challenging to obtain? It is not that banks are forbidden to bank cannabis; it’s that they do not want to.  Institutions feel that it may hurt their reputation with their core customers and that some may withdraw their funds and close their accounts. Other concerns are that banking cannabis could open banks up to regulatory fines and punishment. Sadly, U.S. financial institutions are not that good at knowing their customers (KYC) and their customer’s customers (KYCC). Penalties for KYC and KYCC violations unrelated to cannabis transactions exceeded $2.29 Billion in 2019 alone. By following FinCEN guidance, my former institution banked billions of dollars in cannabis transactions and was never fined.

Although FinCEN provides a clear path to compliantly bank cannabis, complexities make sustainable cannabis banking challenging to deliver. Performing rigorous due diligence to meet KYC and KYCC requirements can be challenging and expensive without adopting new technology.

Access to cannabis banking is stacked against those who need it most

Banking solutions go to the largest and most well-funded, leaving the small businesses who aren’t well connected or funded without access to bank accounts.

The priority of opening an account is driven by unreasonable opening balance requirements upwards of $10,000,000 or personal connections that transcend Wall Street, Capitol Hill, and Big Tech. These requirements are so prohibitive that they directly favor privileged, well-funded clients. They also prohibitively eliminate the opportunity for compliant banking for businesses led by people of color, women, minorities, small businesses, and anyone who does not reside within the top 1%. I know this to be true because I witnessed this firsthand.

When these less privileged businesses do not have access to compliant banking, they cannot raise capital, expand operations, and increase economic prosperity. This limited access to banking harms entrepreneurship, innovation and economic development.

FinCEN provides data quarterly and estimates that 500 banks and credit unions filed suspicious activity reports related to cannabis. This does not equate to 500 financial institutions banking cannabis, but only those that reported cannabis-related activity at their institution. Sadly, only approximately 100 institutions bank cannabis nationwide, and most are at or near capacity.

As I mentioned above, my former institution managed $3 billion in transactions with just 200 companies. With over 72,000 licensed cannabis entities located in 36 states, we are not even close to meeting demand.

Technology and data sharing can level the playing field and enable access to banking

To enable access to banking, the cannabis industry does not need new legislation; it needs new technology and cooperation within the banking industry. We can level the playing field by creating fair access to technology and data sharing, which will enable banking access based on data, not bias.

Technology solves this problem by lowering the cost of banking compliance for the banks. These efficiencies will allow more banks and credit unions to bank cannabis, reducing the cost of banking and the proverbial “cannabis tax” that most industry insiders must pay for similar services.  It also lowers the opportunity cost and investment that financial institutions would need to expense to meet the current regulatory requirements to bank cannabis.

In the end, it is what you stand for and how you support your community that matters. Cannabis provides significant benefits for our society and the economy. It is reprehensible that we have not fostered transparency and cooperation between financial institutions and the licensed cannabis industry. It is no longer appropriate for bankers to stay on this issue’s sidelines; it is a moral obligation to support our communities fully. It is not time to wait to bank cannabis. It is time we bank it now.