How prepared is your institution for cannabis banking? If you think you do not need to be prepared since your state has not enabled recreational cannabis, I encourage you to reconsider. It is possible that not only is cannabis banking coming to your state, but it could be sooner than you think. This raises both challenges and opportunities for community financial institutions. First, let’s address some points on background. Cannabis banking means providing financial services to the entire ecosystem of marijuana / THC production, distribution and retail sales. Like any other agricultural product, there are numerous entities that are involved from the initial planting and growing of plants to the production of THC consumables (weed for smoking, and edibles like gummies, cookies/brownies, and other forms such as oils, creams, etc.) to the retail sales of these consumables to the general public. Cannabis is categorized by the federal government as a Schedule 1 drug, which places it in the same category as heroin and LSD. There is a lack of consensus on whether cannabis represents a gateway drug to harder drugs or something that has many health and wellness benefits if used in moderation. Some say marijuana should be treated no differently than alcohol, others are stanchly opposed to all things cannabis on moral grounds. For this article, I am not choosing a side. I will say that for me personally, I am not interested in consuming THC in any form, but I respect that there are those that do want to. Since it is inevitable that recreational cannabis will be available in all 50 states, it is incumbent on the financial services industry to be ready to address the safe and sound practices around cannabis banking. With the addition of Minnesota in May, 23 states have now ratified recreational cannabis. While none of these 23 states include the southeastern states that FNBB serves, the following states have approved medical marijuana: Alabama, Arkansas, Florida, Georgia, Louisiana and Mississippi. The ability for states with legalized cannabis to self-regulate cannabis businesses and commerce without federal justice department oversight was encapsulated by the Cole Memo, implemented during the Obama administration. In 2018, this was overturned by Trump’s Attorney General Jeff Sessions, and as of this writing has not been reinstated. This means that while a state like Colorado has legalized cannabis, it is still a federal crime. Also, the federal restrictions on cannabis directly affects those in the cannabis ecosystem to get access to basic financial services. Consider that nearly everything involved in the cannabis ecosystem is paid for in cash. Credit cards cannot be used, nor can payment rails like ACH, wires or FedNow. Cannabis related businesses struggle to find institutions who will give them bank accounts and transact in the manner that any other legitimate business can. They cannot get production or operational loans. Consider a local plumber located in Colorado that goes to a local, legal cannabis dispensary, to fix the toilet. Upon completing the service, the plumber is paid in cash; it is literally the only way the dispensary can make the payment. The plumber takes that cash to their bank and deposits it, just as they would any other payment received. However, the money smells like marijuana, so the bank files a suspicious activity report on the plumber. Subsequently, the bank determines that this plumber is actively involved in a high-risk activity and closes the account. Sounds extreme? I can assure that this example and thousands of similar examples are occurring in all the states where cannabis is legalized. The U.S. congress can fix this by passing federal legislation to allow for entities that are legally operating in a state to have access to banking services. This has been proposed multiple times in what is called the SAFE Banking Act. The house passed several versions in recent years that were rejected by the senate. While the house was most recently out of active session, the senate passed its version called the SAFER Act and as of this writing it is unknown of its future in the house. Nonetheless, several people knowledgeable of this issue informed me that it is unlikely that the house will pass the senate’s version. As with most legislation, a working group consisting of members from both the house and senate will need to come up with a compromise version that can pass both the house and the senate. Even if this means that recreational cannabis is years away for your state, or years away from receiving the legal framework for banking by the federal government, your institution should take an active interest in what gets passed as its components will directly affect the manner in which you bank cannabis related businesses. As a community bank, you likely have expertise in banking agricultural businesses. When recreational cannabis is approved for your state, will you be ready to assist farmers and other producers in setting up the appropriate production lines? Besides the harvesting of marijuana for THC, there is also the production of hemp. Hemp production can yield CBD oil, another byproduct of cannabis that does not have hallucinogenic properties but provides known medical benefits. Hemp is also used to create industrial rope and other similar products. Farmers growing hemp must ensure that their crops do not exceed .03 THC, and financial institutions banking them will need to monitor these farms for compliance. This is not much different from how tobacco used to be regulated, and banks have been providing production loans for tobacco farmers for many decades. If your state does not have medical or recreational cannabis, does that mean there is no marijuana related products being sold in your state? Of course not. It is just illegal, meaning that crime syndicates will control the distribution of cannabis products. Legalizing cannabis opens the system up to scrutiny, inspections, quality control and taxes. On my recent trip to Las Vegas, I visited Planet 13 – the largest cannabis dispensary in the U.S. This is a large mega-store, 112,000 square feet in total that was as organized and pleasant to any other retail store I have ever visited. Upon providing ID upon entering, the facility included a café, a full menu restaurant, an area where THC products were being made (there was a huge viewing area behind glass – they were working on making gummies when I was there) and a huge retail area. Each and every product was displayed with clear and understandable information on the product’s type, strength and quality. There was weed, gummies, edibles everything you can imagine THC can be in and some stuff that was new to me. Want a BBQ rub infused with THC? Planet 13 has got you covered. I was looking at a honey straw package that was for sale for $36. I wondered how many straws were in the package. Turns out to be one straw. One straw for $36? Turns out that one straw was 100 mg of THC or about five “servings.” The people working at Planet 13 were very knowledgeable and eager to professionally answer every question. For example, I learned that smoking marijuana produces an effect that starts quickly but last only a few hours versus eating a THC infused product can take 40 to 70 minutes to take effect but lasts for 4-5 hours. I did not purchase anything in the store but was very impressed with my field trip to learn more about the retailing of cannabis products. In 1989, I went to work for Commercial Banking Company (CBC) in Hahira, Georgia. I remember my CEO telling me that he never smoked, and he encourages everyone to not smoke. But if someone chooses to smoke, he wanted them to smoke the locally grown tobacco (including from his farms) that CBC was supporting with production loans. This is my attitude about cannabis; my personal attitude towards not consuming it does not mean that there is not a legitimate business purpose to be served for those that do. And as community bankers, we can either stick our heads in the sand and say that anything cannabis does not need to be part of our services or decide how we can safely provide the banking and payment services that this industry deserves. That includes being proactive on how legalized cannabis comes to your state and informing local businesses on your ability to provide systemic banking services as the very moment that it becomes legally appropriate for you to do so and making sure that you have staff trained to understand the laws and regulations of cannabis so they can properly inform customers. I covet your comments on this potentially controversial subject. Maybe your institution is already providing some type of banking services to cannabis businesses. Or perhaps you have been asked about banking some aspect of cannabis and were not prepared to address those types of customers and passed on the opportunity. Or even closed some accounts that you learned were involved in cannabis in some form or fashion. Reach out to me at email@example.com or 225-247-6113. Let’s talk about how your institution handled cannabis banking up to this point, and whether you are prepared for the coming cannabis banking revolution. If you are looking for cannabis related advocacy or education, you may also want to explore the American Cannabis Banking Association (www.theacba.org) where information, certifications and support is available. The views expressed in this blog are for informational purposes. All information shared should be independently evaluated as to its applicability or efficacy. FNBB does not endorse, recommend or promote any specific service or company that may be named or implied in any blog post.