While many banks remain unwilling to work with cannabis-related businesses (MRBs), credit unions and community banks have begun venturing into this emerging market. Legislation has also been introduced in order to lessen any financial obstacles MRBs face.
Banking CRBs entails significant risk, yet by creating and adhering to an AML/CTF program and adhering to stringent compliance protocols a strong AML/CTF program can protect from reputational, legal and regulatory damage.
From Taboo to Mainstream
Banks tend to shy away from banking marijuana businesses. Federal prosecution threatens the industry, forcing most state-legal cannabis-related businesses (CRBs) that operate legally to operate solely with cash transactions instead of tapping mainstream financial services for financing purposes. This puts them vulnerable to criminal exploitation as well as restricting them from accessing mainstream financial services.
Thankfully, however, things may be changing for the better. ICBA has been pushing to pass the SAFE Banking Act, which would ensure federal regulators cannot threaten to withhold deposit insurance or downgrade loans made to banks that work with state-legal CRBs; Green Check Verified was founded to assist banks navigate this risky landscape; Green Check Verified’s services have also emerged to assist. But banks must still do their research and stay compliant with federal laws while being aware of five myths regarding banking marijuana-related businesses.
FinTech Solutions
FinTech, or financial technology, has become an invaluable tool in solving the banking issues facing the cannabis industry. These solutions are tailored specifically for this sector to increase compliance and operational transparency while encouraging growth and financial inclusion within an underserved market.
FinTech companies are helping CRBs reduce their reliance on cash transactions with solutions such as digital wallets that connect directly to bank accounts, enabling consumers to purchase products and services from CRBs using virtual currency.
FinTech tools such as anti-money laundering software automate compliance processes to eliminate human error, meeting regulatory requirements. KYC solutions facilitate efficient customer onboarding and verification procedures to adhere to AML and CFTC regulations while mitigating risk through decreasing the number of accounts tied to CRBs.
Regulatory Technology
Cannabis companies require access to financial services essential for daily operations, including deposit-taking, payment processing and merchant services. Without this support, their ability to operate efficiently and build trust among consumers and stakeholders would be severely limited.
FinTech solutions are responding to this problem by creating tailored compliance frameworks and cutting-edge technologies – such as blockchain-powered seed-to-sale tracking systems that ensure transparency and immutability.
States play an essential role by passing legislation to create closed-loop payment processing systems that ensure tax payments from cannabis corporations and purchase payments by consumers are sent directly to states for processing, eliminating cash handling. This helps minimize money laundering and terrorist financing activities while as cannabis-related business (CRB) transactions become mainstream banks must continually evaluate their risk tolerance in order to best support new customers.
Payment Solutions
Cannabis business owners want their company to be treated like any other, and this includes accessing banking services. Banking services enable cannabis entrepreneurs to invest in growing their company – hiring more employees, carrying new brands at their dispensaries or opening additional locations – opportunities which benefit communities as they expand.
Banks can assist cannabis businesses by offering ACH payment solutions. Furthermore, banks can assist by providing AML software and KYC solutions that effectively screen for risk. Finally, banks may provide seamless cryptocurrency on-ramps that make transitioning back into fiat currency easier for cannabis businesses – thus decreasing cash-flow risk while protecting them from volatile virtual currencies and giving more flexibility when planning and forecasting profit streams.
Developing a Solid Banking System
Cannabis industry transactions are becoming an increasingly lucrative venture and, while they typically take place using cash transactions, financial institutions (FIs) that choose to provide CRB services must ensure they update policies and procedures to reflect this decision and ensure BSA compliance. FinTech firms that specialize in regulatory technology offer advanced software systems that provide greater financial transparency while verifying adherence to complex compliance protocols while simultaneously permitting electronic commerce transactions reducing dependence on cash.
State-level laws such as SAFE Banking legislation can also provide valuable assistance, preventing federal regulators from taking adverse actions against banks that provide services to state-legal MRBs. Banks which successfully balance compliance work streams while offering comprehensive banking solutions will find success in this new market – competition is fierce!