Marijuana Business Magazine November-December 2019
Marijuana Business Magazine | November-December 2019 152 of the federal government. The Federal Deposit Insurance Corp., the Federal Reserve, the National Credit Union Administration and state regulators are among those overseeing financial institu- tions. Those agencies can issue penalties or disciplinary actions when banks and credit unions run afoul of the rules. FinCEN issued guidance in 2014 for how financial institutions can provide services to marijuana-related businesses and comply with their duty to detect and prevent money laundering. Fed- eral lawmakers have discussed a legal framework that would enable financial institutions to serve state-authorized marijuana businesses without fear of federal interference. The full U.S. House of Representatives passed the Secure and Fair Enforcement (SAFE) Banking Act in late September. Its prospects are less certain in the Senate. While cannabis is still not approved on a federal level, many institutions have regulations around the percentage of revenue that can be derived directly from the cannabis industry, said Christy Kline, managing partner of Denver-based Merritt Strategies. “Big banks are looking for diversification, so anything that represents a concentration risk of any kind will be a concern,” Kline said. “If you’re a packaging company, for example, and one of your clients in cannabis represents 40% of your revenue, that’s a concentration risk, and that’s going to cause some heartburn.” FINDING A BANKING PARTNER “For an ancillary company wanting financing, the institutions that would be willing to lend will most likely set a concentration limit of 20% or less of revenue derived from the cannabis industry,” Kline said. Operators with more than 20% of their business linked to the industry can probably rule out getting banked by national financial institutions. They should instead try to identify a small or regional bank or credit union willing to establish a relationship. “It’s helpful to know what you want from your bank,” Kline said. “It’s helpful to know what kind of services you’ll be utilizing and the approximate volume at which you’ll be utilizing them.” Companies can share whether they’re going to need wire transfer services, automated clearing house (ACH) payments or other tools to see if those services will be available and at what prices. Depository Institutions (by type) Providing Banking Services to Marijuana Related Businesses 1 (SARs filed through 30 June 2019) Short-term declines in the number of depository institutions actively providing banking services to marijuana related businesses (MRBs) may be explained by filers exceeding the 90 day follow-on Suspicious Activity Report (SAR) filing requirement. Several filers take 180 days or more to file a continuing activity report. After 90 d ys, a depository institution is no longer counted s providing banking services until a new guidance-related SAR is received. Number of Depository Institutions Actively Banking Depository Institutions Providing Banking Services to Marijuana-Related Businesses Source: U.S. Treasury Department’s Financial Crimes Enforcement Network Christy Kline is managing partner of Merritt Strategies. Courtesy Photo The number of financial institutions serving marijuana-related businesses has grown steadily over the past five years, according to federal data. But the figure represents a fraction of the nation’s more than 4,000 commercial banks and 5,000 credit unions. As of June 30, 715 financial institutions — 553 banks and 162 credit unions —were serving MJ-related businesses. Some cannabis industry officials, however, contend less than a hundred financial institutions are set up to work with ancillary MJ businesses.