Now is the Time to Change the Downward FinCEN Cannabis Banking Trend

Despite the “green wave” America experienced on Election Day, and the increased success the legalized U.S. cannabis industry has experienced in 2020, the number of financial institutions providing banking services to cannabis-related business (“CRBs”) appears to be decreasing. In fact, this was the third quarter in a row that FinCEN’s quarterly report has shown that fewer banks and credit unions filed requisite suspicious activity reports (“SAR”s) indicating that they service cannabis clients.

While one of the reasons for the steady decline may be attributable to FinCEN’s June guidance that removed mandatory SAR filing for hemp-related businesses and therefore those financial institutions that only serve hemp customers are no longer reflected in the report, another factor may be that cannabis-related SARs are being filed late due to staffing constraints brought on by the COVID-19 pandemic. Regardless, the troubling downward trend supports the contention that not enough financial institutions are entering into the cannabis banking space to meaningfully change the landscape for cannabis business operators.

With new states legalizing medicinal cannabis and more states legalizing cannabis for adult-use, the need for cannabis banking that provides robust service offerings and competitive pricing is only going to grow.  The expanding market will provide additional business opportunities for those financial institutions currently serving cannabis clients and new income for those considering entering into the space.

Conversely, the reasons for providing financial services to CRB customers is shrinking. Federal and state regulators have issued statements in support of those banks and credit unions making the business decision to serve the cannabis industry. Certain states, such as California and Michigan, have issued state-specific guidance for cannabis banking, and Colorado created a state-sponsored road-map to encourage new entrants in the space. Likewise, examiners throughout the country are indicating that they have no opinion about whether cannabis banking is appropriate provided that financial institutions can serve the industry in a way that ensures compliance with existing BSA obligations, the 2014 FinCen Guidance, and protects the safety and soundness of the institution. Further, a group of bipartisan attorneys general and state treasurers have indicated support for cannabis banking by sending letters to Congress in support of the Safe Banking Act. Efforts to pass the Safe Banking Act continue even though it has been stalled in the Senate. The House included the Safe Banking Act in the HEROES Act and supporters remain hopeful that the Safe Banking Act will finally be passed if a new chair of the Senate Banking Committee is appointed in 2021.

Notably, because several financial institutions have implemented and operated compliant programs successfully for a number of years, we have proof that compliant cannabis banking is not only doable but more likely than not, here to stay. Today, we have more qualified consultants and advisors than ever before providing the know-how to get started, and these professionals continue gaining valuable knowledge by working with a diverse group of financial institutions that serve CRBs. Similarly, automated solution providers continue to improve and innovate products so that banks and credit unions can leverage collective learning lessons before and after entering the space. As a result, financial institutions implementing regulation technology programs get the efficiencies needed to minimize costs scale programs quicker.

Undoubtedly, CRBs and the cannabis industry will continue to grow and develop solutions to support the expansion of their businesses. In turn, these businesses will contribute to the communities in which they operate. Hopefully, in 2021, those innovative leaders of community banks and credit unions that understand the importance of supporting the cannabis industry and the opportunities that the “green wave” will bring, will start to take the steps necessary to bank cannabis. If they do, CRBs will have an easier time accessing legitimate banking services, and we will see an upward trend in the quarterly FinCEN reports.