Cannabis Banking FAQs

Yes, a financial institution, can provide financial services to Marijuana Related Businesses (MRBs), also known as Cannabis Related Businesses or CRBs), consistent with its Bank Secrecy Act (BSA) obligations.  (Source, FIN-2014-G001, FinCEN; U.S. Department of Treasury, issued 2014).

Yes, all cannabis banking deposits are treated equally to any other deposits, and are subject to the insurance limits established by FDIC.  These deposits are no different than core customer deposits, and the source of these funds/deposits have no bearing on federal depository insurance.

Financial institutions often have concerns that offering services to cannabis-related businesses may cause them to lose their account with the Federal Reserve. The Federal Reserve has previously communicated that it too has incorporated the FinCEN guidance into its examination materials. To date, no financial institution has lost its account with the Federal Reserve because of providing banking services to state-legal cannabis-related businesses in accordance with the FinCEN guidance.

Financial institutions have a choice in whether to provide services to CRBs.  The decision to do so is a risk-based decision, and is subject to the approval of the Board of Directors of each financial institution.  The most common reasons include a lack of technology, staffing and institutional capacity to provide service to this “higher risk” industry.

While banking cannabis contains risk, it is no different than banking any other cash-intensive industry, like MSBs, restaurants, laundromats, car washes, or other businesses.  However, unlike many of these industries, CRBs are regulated by the State of California, which has licensing and investigation division that is responsible for regulating and examining these businesses.  Our financial institution conducts rigorous monitoring, both before an account is opened and throughout the relationship, and leverages technology and third-party services to ensure our compliance is robust and effective.

A financial institution can provide banking services to CRBs in a very similar manner as they would to MSBs.  The expectation is for the financial institution to implement a sound risk management program, heightened monitoring, Customer Due Diligence (CDD), and Know Your Customer (KYC), of the business, its beneficial owners, controlling parties, any key persons, and investors.

Yes, there is no legal or regulatory restriction to prevent lending to the cannabis industry.  However, the decision to lend remains at the discretion of the Board of Directors and must be established and approved in Policy and Procedure.  There are additional risks to lending to the industry, so many institutions choose not to lend to this new and emerging market.

CRBs are cash-intensive businesses that require the use of an insured armored courier (i.e., Brinks, Axiom Armored, Garda, Loomis, etc.) to facilitate deposits into the financial institution.  This is performed by the armored courier service picking up cash in sealed bags, who in turn bring the sealed bags to their outsourced vaults to count and verify the currency amounts, and then report the deposit amounts to the financial institution.

Financial institutions must perform due diligence on cannabis-related businesses both while onboarding the business and for the duration of the time such a business remains a client of the financial institution. While the details of onboarding and ongoing due diligence depend on each individual financial institution, all such diligence must adhere closely to the FinCEN guidance. As such, onboarding due diligence may be as simple as reviewing a cannabis business’s licenses and corporate documents or as intensive as going through such a business’s license applications and enforcement violations in detail.

The BSA requires financial institutions to file a Suspicious Activity Report (“SAR”) for any business they believe willfully disguises activities or violates federal law. Since the cultivation, processing, and sale of cannabis for any reason remains illegal under federal law, banks must continue to file SARs when working with cannabis-related businesses, even though state laws regulate such activity.

The FinCEN Memo breaks SAR reporting for cannabis-related businesses into three groups based on risk level.

The first type of SAR, called “MARIJUANA LIMITED,” is to be filed for businesses a financial institution believes do not violate any of the federal government’s eight priorities. In this case, the SAR will be limited to identity and address information about the business. The fact that the filing institution is filing the SAR solely because the subject is engaged in a cannabis-related business (and because no additional suspicious activity has been identified).

The second type of SAR, called “MARIJUANA PRIORITY,” is to be filed for cannabis-related businesses a financial institution believes may be violating one or more of the federal enforcement priorities. In this case, the SAR must include, along with identifying and address information, comprehensive details on the enforcement priorities the financial institution believes have been violated and the dates, amounts, and any other details relevant to the suspicious activity.

The final type of SAR, known as “MARIJUANA TERMINATION,” is to be filed for cannabis-related businesses with which a financial institution terminates their relationship due to continued violations of federal enforcement priorities or other issues preventing the financial institution from maintaining an effective anti-money laundering compliance program. When this occurs, FinCEN urges the financial institution to share information about the business with other banks. (These reports need not be filed if a financial institution terminates the relationship for unrelated reasons.)

Additionally, the FinCEN guidance requires financial institutions to continuously monitor their cannabis-related clients for any of the “red flags” listed in the guidance. Unsurprisingly, such heightened due diligence can increase a bank’s internal costs. To combat this issue, several third parties have developed compliance software or other products for financial institutions that service the state-legal cannabis industry.

These products help financial institutions to navigate the regulatory compliance demands of servicing the cannabis industry and provide tools and resources for due diligence.