Trade Group Provides Marijuana Business Owners With Guidance On Finding Banking Services Despite Federal Prohibition

A coalition of financial institutions released new guidelines for cannabis businesses seeking to secure banking services.

The Cannabis Industry Financial Group’s (CFIG) report, published on Monday, says that while compliance is onerous for most businesses compared to banking, it’s still possible for the marijuana sector to receive reliable, above-board financial services, without having to wait for the passage of the Secure and Fair Enforcement Regulation Banking Act (SAFER).

The guidance states that “While there are still conflicts between federal cannabis policies and those of the state, some financial organizations have chosen to provide banking services to state legal cannabis-related businesses (CRBs)”. Financial institutions may serve state-legal cannabis industries without repercussions or enforcement if they follow the Financial Crimes Enforcement Network’s (FINCEN’s) guidelines and work in close cooperation with financial regulators.

The document “Keeping Your Accounts Secure & Safe: A Guide to Selecting a Banking Institution with a Strong Cannabis Bank Program” follows the advice CFIG gave in July for banks and credit unions that wanted to serve the state-legal cannabis industryy.

This resource is designed to give those working in the state-legal marijuana industry the necessary insight to navigate a compliant and successful banking relationship, protecting their accounts and livelihoods.

— CFIG December 5, 2020

The new report states that “given the continued growth in state legal cannabis operations, and the importance for CRBs to have access to banking services in order to ensure safety and soundness,” “this document seeks help CRBs better understand the requirements of financial institutions if they are servicing businesses or businesses directly or indirectly involved in the state legal marijuana industry.”

The guide says that potential clients of cannabis businesses should first understand the challenges banks face when onboarding them. They must follow anti-money-laundering requirements, engage in Know Your Customer procedures and file reports about suspicious transactions.

The report notes that “although FINCEN has provided guidance on the filing of SARs,” the guidance doesn’t prevent prosecutions for violating federal law.

The new guide focuses on ensuring that businesses ask the correct questions when they are seeking financial services, and that institutions ask the correct questions to potential clients.

The report advises operators to make sure that institutions are able to service their specific type of business. It specifically refers to Tier 1, Tier 2, and Tier 3 businesses. According to the CFIG report, Tier 1 businesses touch plants, while Tier 2 businesses and Tier 3 businesses get more or less revenue than 50% from companies that touch plants. The report adds that “typically, institutions also differentiate between the types Tier 1 businesses (i.e. cultivation vs. retailer).”

The document encourages potential clients to inquire about the institution’s marijuana-banking program, if one exists. The document states that the onboarding process is lengthy due to enhanced due diligence. If a bank doesn’t have a program in place with compliance mechanisms and employees, it can cause a delay.

The guide states that “furthermore, if an FI (financial institutions) moves forward with a customer before compliance mechanisms are put in place, then the client runs the risk of their money not being handled appropriately, which could threaten their operation, licenses and, ultimately, their legality.” Banks that do not have proper programs can be exposed to the potential of money laundering or asset forfeiture.

The guide advises clients to inquire whether or not the institution “has undergone a regulatory examination” and the results. The guide says that just as the FI will want to make sure your house is in good order before engaging your business, a successful exam shows the FI’s house is in good order.

Ask the institution what services it can offer, including to employees of marijuana businesses. The report states: “Make sure that your FI relationship extends to all of your employees, and that they have access to financial services.” This includes payroll, checking accounts, personal loans.

CFIG states that banks will ask businesses for a cannabis license issued by the state, business documentation such as a tax ID or registration, financial documentation such as balance sheets and income statement, and operational details such as an organization chart, a statement of ownership, a payroll list, and other information.

The advisory warns against entering into a relationship with a financial institution that doesn’t perform due diligence. “This program may not be on the up and up, exposing your business to serious risk.”

CFIG stated that it is important to continue the relationship with the bank after enrolling as a customer by monitoring the bank to ensure transparency and compliance.

The guide states that it is not legal advice, and shouldn’t be taken as such. The document’s disclaimer states that “none of the recommendations can protect you from federal enforcement actions because there are contradictions between federal and state laws.” It is intended to inform those who have direct or indirect connections to state legal cannabis operations in order to make a better choice in a financial institution.

Federal legislation has been introduced that would lift major banking restrictions on the cannabis industry.

Chuck Schumer, Senate Majority leader (D-NY), said that it is now a matter of getting more GOP votes to bring the Secure and Fair Enforcement Regulation Banking Act (SAFER) to the floor. Schumer stated that the task is more difficult because some legislators are afraid their constituents “particularly the older ones” don’t want to embrace reform, despite the overall majority of voters support.

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The majority leader, despite the broad support of voters, said modest marijuana banking legislation that passed the Senate Banking Committee in September is still being held on the floor while senators try to assemble a stronger bipartisan coalition.

“It’s bipartisan. The House has backed it. Schumer stated that the bill could become law in a short time, but did not give a timeline.

This perspective is different from the one of Sen. Steve Daines, the main GOP sponsor of SAFER Banking Act (R-MT), whose position was that there were already enough Republican senators in the Senate who would be willing to move the bill forward.

Daines suggested that the key question is if the measure has the support needed to pass in the House. He stated last month that the Senate is working with its House counterparts to “get alignment between both chambers.”