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Over the past few years, the United States has experienced continued growth in the cannabis industry. According to the National Conference of State Legislatures, 18 states to date have legalized the adult use of marijuana for recreational purposes and medical use. This has put additional pressure on financial institutions’ monitoring of potential marijuana-related business (MRB) activity in their portfolios – leaving many evaluating whether the revenue is worth the hassle of conducting banking services for these types of businesses.
First passed as a standalone bill in the U.S. House on April 19, 2021, the Secure and Fair Enforcement (SAFE) Banking Act is aimed at explicitly prohibiting federal regulators from handing down penalties to financial institutions for serving legitimate businesses, such as MRBs. If signed into law, this would allow financial institutions to operate with safer, more trustworthy financial practices rather than relying entirely on cash.
To date, the SAFE Banking Act has passed the U.S. House six times, most recently in February 2022 as an amendment to the America Creating Opportunities to Meaningfully Promote Excellence in Technology, Education and Science Act of 2007 Act (COMPETES Act). With each version that is passed, the bill gains more bipartisan support bringing hope that the regulatory hurdles to provide banking services to MRBs will become easier to overcome in the near future.
If your financial institution is contemplating, or already offering services to MRBs, make sure you’re taking into account the extra operational steps and the policies and procedures you’ll need in place to remain compliant.
When marijuana became legalized in several states, policies and procedures began only including MRBs. Since the industry has continued to evolve, now all areas of cannabis should to be considered, including hemp and cannabidiol (CBD). Today, there are three tiers of marijuana to identify when integrating these service offerings into your policies and procedures:
Since MRB accounts are all-encompassing, each related area should be identified – marijuana, hemp and CBD. You’ll also want to consider what type of policies and procedures your financial institution will put in place for the industry. For example, will you allow someone who is a W-2 employee of a Tier I MRB to apply for a loan with your institution? Will you allow business accounts for CBD only, but not hemp and marijuana, or a varying combination of them? These questions, among others, will need to be determined and addressed in the related policies and procedures.
Monitoring MRB accounts is critical for ensuring compliance and detecting unusual and suspicious transactions. Here are a few considerations related to account monitoring you can’t afford to overlook when doing business within the cannabis industry.
Whether your institution is new to banking MRBs, exploring whether to offer services to them, or needing assistance in reviewing or establishing effective monitoring and reporting systems, Doeren Mayhew’s Financial Institutions Group is here to help. Contact us today to learn more.
This publication is distributed for informational purposes only, with the understanding that Doeren Mayhew is not rendering legal, accounting, or other professional opinions on specific facts for matters, and, accordingly, assumes no liability whatsoever in connection with its use. Should the reader have any questions regarding any of the news articles, it is recommended that a Doeren Mayhew representative be contacted.
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