Is it Time to Discuss the Realities of Cannabis in Your Bank with your Board?

By Andy Montgomery | CEO and Founder of HDCS | Former Bank CEO

Is Banking Cannabis Safe?

It is very unlikely that the SAFE Banking Act for cannabis banking will get past the Senate this year and become law. Still, if you pay acute attention to regulators at the State and Federal level, you can hear a decided change in the tone of their voices regarding financial institutions that choose to provide services to cannabis related businesses. In nearly every speech she gives these days, FDIC Chairwoman, Jelena McWilliams, points out that member institutions would be fine with their regulators in banking cannabis if they adhere to the existing guidance. Chairman Hood of NCUA has been making those same comments about its member institutions for some time. And a few States have acted to provide statutory protections to financial institutions that provide services to the cannabis industry.

Are you Unintentionally Banking Cannabis?

The truth is that approximately $20 Billion goes from legal cannabis related businesses into financial institutions each year. That amount continues to grow and does not include the illegal or illicit cannabis business, some of which flows undetected through the financial services industry illegally. As there are a limited number of financial institutions across the nation openly accept cannabis deposits, a good portion of cannabis revenue is flowing into financial institutions without the institution’s knowledge, or, at least, without a risk-based program that identifies and mitigates that risk. And, as “best practices” get learned and implemented, more and more BSA/AML audits are uncovering hidden cannabis deposits.

What is Your Bank’s Risk Appetite?

We find in our outreach that financial institutions take one of three positions as it relates to cannabis:

1. The financial institution doesn’t want to bank cannabis now or in the future. This is the most common position. However, in presenting this risk policy, institutions need to ensure that their practices and deposit portfolio match their risk appetite statement.
   If the institution does not adjust current policies, training and oversight, not only could the institution ultimately be presented with the unwanted finding that they are banking cannabis, but because they don’t have enhanced due diligence in place they could find that it is banking illegal cannabis business.
2. The institution wants to be ready for cannabis when a SAFE Banking Act passes. We run into a surprising number of institutions in this category. Given the statements that regulators are making, one has to wonder if it makes sense to wait for congressional action.
   Cannabis businesses will be very loyal/sticky customers to the institutions that are early movers in the space and, as they have previously been shut out of the financial services industry, the businesses represent a number of cross-sell opportunities.
3. The institution is openly banking cannabis. This number is a small part of the industry. What is smaller still are those banks that have approached the industry with the intention to create safe and profitable programs. Our advice to these banks is to not have an ad-hoc program, but instead approach the business with the thoughtfulness and preparation that Is needed for what is the highest risk deposit industry.

SAFE Banking is on the Horizon

When a Federal cannabis “Safe Banking Act” is eventually passed, it will be accompanied by increased regulatory scrutiny and a tightening of standards for all institutions regardless of risk appetite for the industry. As of today, we do not have Federal guidance providing the governance and rules for banking cannabis related businesses. When FFIEC establishes the rules for institutions, each institution that is in a state in which cannabis is legal and flourishing will have to put controls and protocols in place to ensure that it is adhering to the new regulations, state and local laws, and the risk appetite that was established by its board of directors.

There is a Safe and Profitable Solution

At HDCS, one of the many things that separates us from our competitors is that we have an affordable solution for vetting your cannabis customers created by bankers for bankers.

We would be happy to meet with you to understand your objectives and risk appetite and share our view of the best practices involved in establishing a safe and profitable cannabis banking program. Use this link to schedule a video conference at a time that is convenient for you and your team, or email me directly at

a.montgomery@hdcompliance.com. Let us give you a tour of our data portal and demonstrate what a risk-focused and profitable cannabis banking program could look like for your financial institution.