19 Dec Banking and the cannabis Industry: What you Need to Know
On December 4, 2019, four federal agencies – in conjunction with the state bank regulators, issued a statement clarifying the legal status of cannabis growth and production under the Bank Secrecy Act (BSA) for banks providing banking services to cannabis-related businesses.
The statement emphasizes that banks are no longer required to file suspicious activity reports (SAR) for customers solely because they are engaged in the growth or cultivation of cannabis. This is the first time that the agencies have even acknowledged the existence of cannabis and the legality of cannabis. And, it’s the first time guidance on how banks can meet their compliance requirements has been offered.
According to the Bank Secrecy Act (BSA), banks need to know their customers. Meaning, they have to collect documentation from the customer to know exactly what their business does. This law has been in place since 1970, so banks have strict policies and procedures to institute and follow with every new customer.
Here are a couple of things cannabis businesses need to know when building a banking relationship:
Be Selective in Choosing your Bank
The first thing a cannabis business should do, even before researching banking institutions, is to determine what services they will require from the bank. Will they want deposit services (checkbook, debit card, online banking, etc.), or loan services (financing for buildings, crops or land). Some banks offer one service, or the other, or both.
Providing banking services is new to banking institutions. And as such, some banks will simply turn cannabis businesses down. Some banks have the resources, knowledge, and willingness to serve the cannabis industry, and others don’t/won’t. Business owners should be persistent in finding the right bank, even if they’ve been turned down several times.
Many banks have been exploring the possibility of serving the cannabis industry and have even started marketing their banking services. Keep an eye out for these banking institutions as they are often more prepared and willing to work with cannabis industries.
Since banks need to know their customers, they will need to collect a lot of information, and business owners must be prepared to provide it.
Now that banks have been provided some guidance, many want to serve the cannabis businesses in their communities. Many will be very prepared with questions. So, it’s important that businesses match that preparation. Business owners should not be discouraged if they have to leave to gather the required documentation. More information is better – for the business, and the bank.
And it’s critical that the businesses think of their entire operation. Cannabis companies likely will need to share seed details, field or grow facility details, who the cannabis is intended for, and many other fine points about the business. The more documentation provided the better. This point has been repeated on purpose!