The strict regulations surrounding cannabis banking require extensive due diligence, compliance oversight, and significant labor.
Munzer Sukhun, Vice President, Business Services
As the cannabis industry continues to grow and legalization extends to new states at a steady rate, banking services tailored specifically for cannabis businesses have become increasingly necessary. Unfortunately, due primarily to ongoing federal illegality and strict state oversight, banking services for the cannabis industry come with a higher cost of doing business, along with difficulties in securing checking accounts and loans.
However, Salal is working to change these issues for the better. And we’re also working with cannabis business owners and employees to provide helpful financial tools and insight into why this industry is still experiencing these growing pains—and what you can do to lessen the personal pains and build a strong financial future.
A Unique Level of Required Due Diligence
A primary reason for the increased costs associated with cannabis banking is the extensive due diligence that the financial institution must undertake. The work begins prior to the establishment of a banking relationship with a business and continues throughout the duration of the financial partnership.
Unlike standard business accounts, the initial application process for cannabis businesses involves rigorous background checks, credit assessments, and intense documentation scrutiny. In addition, compliance checks with state agencies and adherence to licensing requirements—to make sure the license is active and correct—add another unique and complex layer to the onboarding process. There is a great deal of back-and-forth between the institution and the applicants to ensure that they are serious about their business, understand the work that is necessary to be successful, and all their documentation meets Salal’s guidelines.
At Salal, our extensive experience in cannabis banking and the relationships we’ve established with state regulators and compliance officials inform our work, and significantly eases the process. However, it is still a heavy lift due to the need to be meticulous during each step of the process.
Once onboarding is complete, federal regulations require that all transactions must be closely monitored and all movement of money must be documented. Account activity is monitored by Salal’s cannabis finance experts and compliance teams to ensure that regulatory guidelines are followed. We can automate some of this oversight, but we need individuals behind the scenes to validate and submit reports to the proper agencies. This type of required oversight extends to additional detailed reporting obligations that are typically required on a monthly or quarterly basis. Discrepancy between reported sales and deposited funds may require further investigation to ensure alignment with federal Cole Memo guidelines to enforce “a tightly regulated market in which revenues are tracked and accounted for.”
Beyond monthly and quarterly analyses, annual reviews are necessary to ensure compliance with ever-changing and evolving state regulations. These reviews require a significant amount of time and resources, and additional staff are often called upon to assist, which adds to the financial institution’s operating costs. While Salal is a not-for-profit organization, we must still maintain compliance and operational integrity in order to cover operating expenses and continue to properly serve the cannabis industry. As a financial institution working in cannabis, we must regularly self-audit as well as prepare for regular audits by state and federal agencies.
Salal has been working with the cannabis industry since 2014 and we embrace the challenge to help the industry thrive. In order to do that, we’ve invested heavily in robust processes and dedicated staff members that cater specifically to cannabis businesses. Compliance, technology, and the expertise that comes from experience allow us to serve the needs of cannabis cultivators, product manufacturers, and retailers, as well as contribute to the industry’s legitimacy and growth. For most other financial institutions, however, the perceived risks outweigh any potential rewards, which means a reluctance or outright avoidance of cannabis banking. As advocates for serving the underserved, we don’t think that’s right—so we’re doing something about it.
Salal’s cannabis banking experience and knowledge of regulatory and compliance demands means cannabis businesses can feel safe and supported with all of their banking needs. Reach out today to see how we can help you secure your—and your company’s—financial future.
