Opportunities and Risks of Banking for Marijuana-Related Businesses

  • Share:

CUTrendScan Stratigic MRB

Imagine an industry estimated at $16 billion with only 30 percent of business owners having a bank account. For most industries, this would be a recipe for disaster, yet it’s the reality for marijuana-related businesses (MRBs). Currently, 34 states, as well as the District of Columbia, Guam and Puerto Rico, have legalized the use of marijuana to some degree. However, the possession, distribution or sale of marijuana continues to be illegal under federal law, as marijuana is still labeled as a Schedule I drug under the Controlled Substances Act. This presents financial institutions who handle funds from MRBs with significant risk — but make no mistake, banks and credit unions are already handling these transactions, whether they know it or not.

With the legal marijuana market predicted to reach a dizzying $57 billion worldwide by 2027, financial institutions are faced with a dilemma: ignore this sizable market, or risk providing services to MRBs?

Regardless of size, financial institutions need to be aware of the regulatory risks, how to identify whether they are servicing MRBs and what steps they can take to reduce their liability. For some, this means a new way in approaching transaction monitoring, risk assessment, due diligence and training.

CUTrendScan MRB Map

Why financial institutions consider onboarding MRBs, and why many don’t

Considering whether or not to onboard MRBs is one of the top questions many financial institutions are currently asking themselves. According to the Financial Crimes Enforcement Network (FinCEN), 375 banks and 111 credit unions are officially providing banking services to MRBs as of Q4 2018.

CUTrendScan MRB Graph

Some within the industry see serving MRBs as an inevitable step as more states begin to legalize marijuana — and as business owners rapidly move from a cash-reliant system. Despite this, the majority of financial institutions still maintain a hands-off approach when it comes to MRBs, reasoning that the multitude of risks involved with MRBs are too great. According to FinCEN statistics, less than two percent of all credit unions in the U.S. are providing services to MRBs.

Deciding whether or not to offer financial services to MRBs is a big step for a financial institution to take, and one that would have to check a lot of boxes before any plan moves forward.

The Michigan Credit Union League (MCUL) provided a recommended checklist for credit unions who are considering onboarding MRBs:

  1. Obtain appropriate legal counsel and have legal counsel present the plan to the board of directors
  2. Use a board-approved policy when addressing MRBs
    1. Determine which types of MRBs will be serviced
    2. Update credit union risk assessments
  3. Update credit union bylaws
  4. Implement appropriate procedures for staff opening MRB accounts, including:
    1. Ensuring proper licensing with the state
  5. Develop an enhanced monitoring account program for MRBs
    1. Staffing resources — a staff solely dedicated to MRBs
    2. Utilize anti–money laundering software
    3. Have a third-party vendor assist with tracking MRB activity
      1. Seed to sale
      2. Know your customer
    4. Onsite inspections
      1. Ongoing maintenance
      2. Dedicated staff assigned to specific MRBs — constant communication with the business
  6. Evaluate and enhance physical branch security
    1. Updated cameras that can see dollar bill denominations
    2. Additional vault cameras
    3. Security guard
  7. Review agreement with armored car service — need to confirm that the credit union’s armored car service will transport cash from MRBs
  8. Work very closely with credit union examiners and regulators
  9. Have a firm exit strategy in the event something occurs at the federal level, such as the U.S. Department of Treasury or FinCEN indicating financial institutions are no longer permitted to bank with MRBs or if the credit union’s regulator requires the credit union to exit.

So why do banks and credit unions take on all this risk? What are the benefits of tapping into the MRB industry?

Serving the underbanked

The largest draw for both banks and credit unions is the vast untapped potential of MRBs. The marijuana-related industry is expected to reach $16 billion in 2019 and an eye-opening $57 billion by 2027, but 70 percent of businesses remain unbanked or underbanked, according to Inc. Magazine. MRBs collectively also constitute one of the fastest growing employers in the United States, with some 160,000 people working in the industry, according to a survey by Marijuana Daily Reports.

MRBs need access to financial services to survive and expand. According to case studies by the Association of Certified Anti–Money Laundering Specialists (ACAMS), MRB owners have a number of challenges without a bank account:

This is an attractive opportunity for banks and credit unions, provided they are ready to shoulder the risks of such an endeavor. The risks, however, are high and can, in some cases, pose an existential threat to financial institutions.  

Providing banking services to a business operating in a federally illegal space is subject to very high levels of scrutiny from regulators and examiners. Moreover, providing banking services to a primarily cash-intensive business opens the door to higher risk: Bank Secrecy Act and Anti–Money Laundering regulations. By providing banking services to these business entities without a robust due diligence program in place or the proper staffing to handle the increased monitoring workload, credit unions open themselves up not just to scrutiny from their examiners, but also to a possible reduction in their CAMELS score and hefty fines. As such, most credit unions will explicitly state in their Bank Secrecy Act policies that they will not be servicing any business that caters to the marijuana industry. Many of these credit unions, however, do not have the capacity to perform an in-depth due diligence on their membership and are potentially unaware of some of the MRB activity that is already occurring.  

Onboarding MRBs

Onboarding MRBs is a risky proposition, even outside of regulatory hurdles. Consider the following:

If your state has legalized some form of marijuana, you can expect a new or growing crop of cannabis-related businesses to take root that will need banking services. Regardless of your credit union’s decision to bank or not bank this industry, it’s important to understand the activities, risks and requirements associated with marijuana-related businesses if your field of membership includes these business owners.

  • Share:

« Return to "Trends"
TrendScan logo
<< Back to Articles

Latest Trends

  1. Opportunities and Risks of Banking for Marijuana-Related Businesses
  2. The Member Service Experience
  3. Become a Tax Resource for Members
  4. Experience Company Growth and Discovery with Employee-Driven Communication
  5. Should You Still Be Concerned about ADA Website Compliance?
  6. What Is a DDoS Attack and Why Should Credit Unions Be Concerned?
  7. Anticipating Change with a Succession Plan
  8. Don't Get Snagged on ADA Compliance Requirements
  9. The Performance Management Conundrum: Structure vs. Creativity
  10. The Planning Process - Improved
  11. Are You Ready to Adopt a Continuous Performance Management System?
  12. Building a Website with the User in Mind
  13. What Credit Unions Should Do with Ambiguous ADA Standards
  14. Your Social Media Accounts Deserve Quality Content
  15. Content Marketing: Well Worth the Effort
  16. Continuous Performance Management is Disrupting HR
  17. Is Your Executive Compensation Still Appealing?
  18. 7 Tax Changes Your Members Need to Know About
  19. 5 Things Credit Unions Can Learn from Cyber Attacks
  20. The Website Audit Your Credit Union Needs
  21. Consumer Attitudes Toward Digital Advertising
  22. The Importance of Creating Quality Content
  23. 3 Succession Plans Your Credit Union Needs
  24. Optimizing Websites for Voice: What You Need to Know
  25. Credit Unions Could Replace Predatory Lenders
  26. The Quest for a One-Stop Shop Financial App
  27. Are You Properly Rewarding Your CEO?
  28. Whatís Hot in Performance Management Technology
  29. Americansí Lack of Financial Literacy Is an Opportunity for Credit Unions
  30. Why HR Should Take Advantage of Employee Self Service
  31. Build Up Membership Through Supportive Savings Programs
  32. 3 Website Design Trends for 2019
  33. Credit Union Compensation: Philosophy or Strategy?
  34. Consumer Appetites in Mobile Innovation
  35. Volunteer and Young Board Members Need Development
  36. Selling Payments and Wealth Management Services
  37. 3 Ways Credit Unions Can Prepare for a Cyber Extortion
  38. Wanted: Apps for Clarification and Simplification
  39. People Analytics: Bringing HR and Data Together
  40. 3 Key Factors for Creating Good Content
  41. The Win-Win Results of Prize-Linked Savings for Credit Unions and Members
  42. The Credit Union Advantage for the Digital Customer
  43. How Useful Are Member Personas for Credit Union Marketing Teams?
  44. Popular DDoS Mitigation Methods in 2019
  45. Shifts and Trends to Know About in E-Learning
  46. Learning Management Systems: What Credit Unions Should Consider
  47. What Borrowers Wished Credit Unions Knew
  48. Prioritizing the Credit Union Employee Experience
  49. 4 Steps to Increased Social Media ROI
  50. What the C-Suite Wants out of Social Media
  51. Is Your CMS the Right Fit?
  52. A Simple Way to Unify Your Marketing Efforts
  53. Keeping Up with Digital Lending Convenience
  54. How Credit Unions Can Formalize the Branding Process
  55. Do You Know Why Payday Loans Are Used so Much?
  56. Making Sure You Have the Right Leaders in the Right Seats
  57. How to Identify What You Want in an ESS
  58. How to Generate Content with Fewer Resources
  59. How Credit Unions Can Embrace Storytelling in Marketing
  60. Empowering Employees and HR with the Latest Technology
  61. Are You Missing Out on the Power of Video?
  62. Credit Unions Can Complete with Shadow Banks
  63. The Dream Team for Successful Online Customer Interactions
  64. Are Your Landing Pages up to Snuff?
  65. 2 Big FinTech Goals for Credit Unions
  66. Just How Distracted Are Consumers?
  67. If Your Site Isn't Mobile Optimized, You're Losing Out
  68. 6 Factors for Choosing the Right ESS System
  69. Protect Your Credit Union with a Website Accessibility Response Plan
  70. Don't Underestimate the Power of Financial Education
  71. Caution: Customers Don't Always Ask for What They Want
  72. 5 Guideposts to Measure Your Brand Promise Against
  73. 3 Factors Impacting Credit Union Compensation Plans
  74. Don't Undervalue Your Brand Promise
  75. Leveraging Social Media for Member Engagement
  76. Finding the Best Platform for HR Technology
  77. Underestimate the Onboarding Process at Your Peril
  78. The Role of HR and Hiring Managers in the Candidate Experience
  79. Why You Should Invest in an Applicant Tracking System
  80. 3 Brand Promises Credit Unions Can Learn From
  81. Preparing for Compensation Transparency
  82. Preparing a Transparency Communication Plan
  83. Content, Tools, and Channels to Capture Consumer Attention
  84. The Best Compliance Training with New Topics You Will Need
  85. Identifying Marijuana-Related Businesses
  86. Cut Through the Noise and Deliver Value Members Want
  87. Serving the Underbanked and Millennials

Related Trends

  1. Opportunities and Risks of Banking for Marijuana-Related Businesses
  2. Identifying Marijuana-Related Businesses
  3. The Best Compliance Training with New Topics You Will Need
  4. Anticipating Change with a Succession Plan
  5. Is Your Executive Compensation Still Appealing?
  6. 3 Succession Plans Your Credit Union Needs
  7. Credit Union Compensation: Philosophy or Strategy?
  8. Learning Management Systems: What Credit Unions Should Consider
  9. 3 Factors Impacting Credit Union Compensation Plans
  10. Making Sure You Have the Right Leaders in the Right Seats
  11. Shifts and Trends to Know About in E-Learning

Industry insights
to your inbox!