Overview
Action Items
- Evaluate whether and to what extent your institution should bank cannabis-related businesses ("CRBs").
- Review the following considerations. Before engaging with CRBs, we strongly recommend that banks evaluate the following 10 considerations found below.
- Contact legal counsel early in the process to ensure you are sufficiently informed of the legal, regulatory, and operational risks involved with banking CRBs.
Top 10 Considerations for Banking CRBs
Rapidly evolving federal and state laws and guidance relating to cannabis, including the legalization of recreational marijuana in many states – now including Illinois – have left many bankers wondering whether and to what extent their institutions should bank marijuana-related businesses, or the broader category of CRBs.
Before engaging in any such activity, we strongly recommend that banks evaluate the following business and legal considerations, which we have been discussing around the country with our clients and their boards:
- Applicable Law
Under the Controlled Substances Act, it remains illegal under federal law to manufacture, distribute, or dispense marijuana. However, the 2018 Farm Bill liberalized federal law relating to the production and marketing of industrial hemp. Congress is further considering other legislation, such as the SAFE Act and the STATES Act, that could provide a safe harbor for banks to provide their services to CRBs; or that even could legalize marijuana entirely if allowed by state law. Every state has its own cannabis regime that must be well understood, especially in relation to federal law. - Board Issues
Has your Board considered whether you should engage with CRBs, and has it comprehensively evaluated how banking CRBs could affect your institution? Have your directors assessed whether banking CRBs could affect their D&O insurance? - New Activities
Do you utilize applicable regulatory guidance, such as OCC Bulletin 2017-43 (New, Modified, or Expanded Bank Products and Services), when evaluating the risks involved and the expectations surrounding any new products or services, including banking CRBs? Have you identified the additional and different risks involved in banking CRBs, depending on whether they are deposit customers, loan customers, or otherwise? - Understanding the Cannabis Marketplace
Do you understand the various aspects of the cannabis industry, and the differences between marijuana, hemp, and the various forms of cannabidiol (CBD) products? Are you willing to engage with both indirect and direct CRBs? Could you be banking CRBs without knowing it? - BSA/AML Expectations
Have you internalized the relevant Bank Secrecy Act/ anti-money laundering guidance regarding CRBs, including FinCEN’s BSA Expectations Regarding Marijuana-Related Businesses, particularly after the formal repeal of the DOJ Cole Memorandum and subsequent pronouncements? Do you understand the various red flags associated with banking CRBs? - Stakeholder Engagement
Have you discussed this issue with the appropriate stakeholders, such as your regulators, interested customers, and correspondent banks? - Policies and Procedures
Have your policies and procedures been updated to ensure that your expectations on CRBs are clear to all of your employees? - Customer Agreements
Have you reviewed your customer agreements to ensure that they account for CRB issues in a manner that accurately reflects your policies and procedures? - Practical Issues
Have you analyzed your staffing needs and capabilities? Has appropriate training been provided to your directors and employees? Have you calibrated your risk-based pricing to account for your compliance costs, without alienating your customers? If you are publicly traded, do you have any disclosure obligations? - Exit Strategy
Do you have an exit strategy if circumstances change? Have you determined how banking CRBs could affect your strategic posture and reputational and regulatory risk, and have you developed a communication and action plan in case you need to take certain steps quickly?
We Can Help You
Over the last few years, we have been on the forefront of this issue. Whether providing training to Boards and employees, assisting with policies, procedures, and customer agreements, interacting with regulators and law enforcement officials, addressing practical concerns, negotiating enforcement actions, or evaluating disclosure requirements, we can help your organization navigate through the complex legal challenges involved with banking CRBs.
John Geiringer is a nationally recognized banking attorney who advises financial institutions on regulatory, governance, and investigative matters. John regularly provides focused training sessions to boards and management on a wide range of legal and risk management topics.