Banks Surge Toward Cannabis Businesses Anticipating Federal Regulatory Shifts

LOS ANGELES- The US Department of Treasury is witnessing an unprecedented surge in requests from banking institutions eager to engage with cannabis businesses, according to data from the Financial Crimes Enforcement Network (FinCEN).

This rush comes amid expectations of significant regulatory changes surrounding the federal classification of cannabis. The U.S. Health & Human Services Department’s (HHS) proposed recommendation to transition cannabis from a Schedule I to a Schedule III drug might be the catalyst altering the banking landscape.

An Overwhelming Response

Over 800 banks and credit unions have officially declared their associations with licensed cannabis entities, as per FinCEN’s quarterly figures. This sharp uptick to 812 financial institutions in the second quarter of FY2023 starkly contrasts with last year’s count of 553 banks and 202 credit unions.

FinCEN’s engagement with the sector began in 2014, offering guidance to bridge the divide between federal restrictions and the cannabis industry’s financial needs. Their report elaborates on the Bank Secrecy Act’s parameters for institutions eager to cater to marijuana-related businesses (MRBs), ensuring alignment with both state and federal law enforcement priorities.

Dissecting the Relationships

FinCEN’s 2014 Guidance outlined three primary categorizations for financial institutions’ affiliations with MRBs:

1. Marijuana Limited: Institutions offering services to MRBs without any implication of violating the Cole Memo priorities or state laws.
2. Marijuana Priority: Banks associating with MRBs that could be perceived as contradicting the Cole Memo’s priorities or breaching state regulations.
3. Marijuana Termination: The institution determines it essential to sever ties with an MRB for maintaining an effective anti-money laundering program.

According to FinCEN’s data update in March 2022, there has been a consistent growth in the number of institutions expressing interest in serving cannabis businesses.

A Perspective Shift

Recent reports suggest that the HHS’s anticipated reclassification could be a game-changer for the cannabis industry, offering transformative opportunities for financial entities. As Richard Laiderman, the former global treasury head for VISA, observed, the reclassification could usher in the acceptance of credit card payments at dispensaries, a move that could eventually diminish the challenges of cash-based operations.

However, experts, like cannabis banking specialist Robert Baron, emphasize the need for financial institutions to uphold rigorous risk management protocols when serving this market segment. These frameworks would be imperative to fulfilling the Bank Secrecy Act’s requirements and performing diligent customer evaluations.

The Broader Impact

Industry experts and advocates echo the sentiment that the current financial void hampers the growth and safety of the cannabis industry. As highlighted by NORML Deputy Director Paul Armentano, the absence of comprehensive banking access, particularly for smaller or minority-owned businesses, significantly restrains the sector’s potential.

With more than 70% of cannabis companies citing “lack of access to banking or investment capital” as their prime challenge in a recent survey, the changing tides in the banking sector come as a much-anticipated respite.

The HHS’s proposed reclassification could mark a watershed moment, heralding an era where the cannabis industry operates with heightened safety and efficiency on the federal stage.