Transparency Is Key: Edith Farrell, BSA Officer at Union Bank, said transparency is key for both the cannabis companies themselves and the banks that service them.
“We’ve got to be able to understand every single transaction that goes through their bank account. We have to look at every deposit, we look at every withdrawal,” Farrell said.
She said some of that monitoring is done manually, but the bank also has two software programs in place to make sure all of their customers’ finances are completely transparent.
“Coming from the caregiver’s side, they’re not conditioned to having somebody look over their shoulder, so that’s been a huge hurdle for them to get used to just having to provide even the information we need to open the bank account,” she said.
Juggling Federal And Local Laws: Patricia Herndon, Senior Vice President of Government Affairs for the Michigan Bankers Association, said cannabis banking industry as a whole has had a difficult task in working with regulators and policymakers in a business that is constantly evolving and at odds with federal laws.
“The issue becomes what banks are essentially doing for their state-legal cannabis customers is money laundering. And its money laundering with the oversight and… transparency with our federal regulators saying this is within our risk tolerance,” Herdnon said.
While many cannabis entrepreneurs are used to creative problem solving and finding practical work-arounds, Herdnon said taking this approach to payments or banking in the cannabis space can be very dangerous.
“The idea of being cute or doing something that is a pragmatic workaround could end up working to your detriment,” she said.
The SAFE Act would be a major step in the right direction in reducing the risk associated with banking in the cannabis business, according to Herdnon.
Leveraging Data: Adam Crabtree, CEO & Founder of NCS Analytics, said all these regulations and compliance measures are creating massive amounts of data.
“When the data is leveraged correctly, it can make a lot of the more difficult aspects of either the regulator’s job or the financial institution’s job significantly easier. Being able to look into some of these companies and understand how they do what they do and getting a firm understanding of that ensures that you’re comfortable with it,” Crabtree said.
Crabtree said the more transparency cannabis licensees have with their businesses, the more willing banks will be to enter the cannabis space.
Dangers Of Payment Processing: Tyler Beuerlein, Chief Revenue Officer for Hypur, said payment processing has been a particularly challenging area for U.S. cannabis companies, with countless applications coming and going in recent years. Not even the SAFE Act will be enough for major credit card companies to get on board with cannabis, according to Beuerlein.
“The branded card networks are not coming into the cannabis industry until federal legality, period. The SAFE Act does not change that,” he said.
Beuerlein said one of his biggest concerns of late has been the use of reverse ATMs and cashless ATMs, both of which are illegal.
“People don’t yet realize that those are also not permissible and fraudulent. It’s not just that retailers are launching these products. It’s also that technology providers are partnering with these companies, and they’re raising money based on potential revenues from transaction volume. And as an investor, if I don’t understand the payment landscape as it relates to cannabis, it’s really easy for me to get in hot water with an investment,” he said.