Banking institutions are in a race to allow cannabis businesses ahead of imminent changes in the way cannabis is classified at the federal level, according to federal data. Cannabis remains prohibited at the federal level, but the U.S. Health & Human Services Department (HHS) recommendation to reclassify cannabis from a Schedule I to a Schedule III changes everything.

NORML reports that there’s a spike in the number of banking institutions that are filing to work with cannabis businesses as the fear of repercussions subsides. 

According to quarterly data provided by The Financial Crimes Enforcement Network (FinCEN),  a bureau of the United States Department of the Treasury, over 800 banks and credit unions have filed paperwork with the U.S. government acknowledging their relationships with licensed cannabis businesses.

FinCEN reports that 812 banks and credit unions reported that they are actively working with cannabis companies during the second quarter of the FY2023. That’s a record high since FinCEN first started tracking these numbers. It represents a significant rise from last year’s numbers, when they identified 553 banks—only 11 percent of all U.S. banks—and 202 credit unions.

FinCEN “issued guidance to clarify Bank Secrecy Act (BSA) expectations for financial institutions seeking to provide services to marijuana-related businesses (MRBs),” the report, which is available for download, reads. “This FinCEN guidance clarified how financial institutions can provide services to marijuana-related businesses consistent with their BSA obligations, and aligns the information provided by financial institutions in BSA reports with federal and state law enforcement priorities.”

FinCEN Types of Cannabis Businesses

“FinCEN’s 2014 Guidance specifies three phrases for describing a financial institution’s relationship to Marijuana-Related Businesses (MRBs) in SARs: 

• Marijuana Limited:  means the financial institution provides financial services to an MRB that the financial institution reasonably believes, based on its customer due diligence, does not implicate one of the Cole Memo priorities or violate state law.
• Marijuana Priority:  means the financial institution provides financial services to an MRB that the financial institution reasonably believes, based on its customer due diligence, implicates one of the Cole Memo priorities or violates state law.
• Marijuana Termination: means the financial institution deems it necessary to terminate a relationship with an MRB in order to maintain an effective anti-money laundering compliance program.”

NORML leaders discussed the topic with The Hill last May.  

“No industry can operate safely, transparently or effectively without access to banks or other financial institutions and it is self-evident that the players in this industry (smaller and minority-owned businesses in particular), and those consumers that are served by it, will remain severely hampered without better access to credit and financing,” NORML Deputy Director Paul Armentano told The Hill.

According to survey data compiled last year by Whitney Economics, over 70% of cannabis businesses that were asked said that the “lack of access to banking or investment capital” is their top challenge. 

FinCEN’s Marijuana Banking Update from March 2022 shows a steady increase in the number of banks and credit unions filing to cater to cannabis businesses. “As of 30 September 2021, FinCEN had received a total of 219,097 SARs using the key phrases associated with MRBs. Several of the SARs contain more than one key phrase, which accounts for the numbers for each key phrase being greater than the total,” the report reads.

“FinCEN received 172,501 SARs from filers using the key phrase ‘Marijuana Limited.’ FinCEN received 15,359 SARS from filers using the key phrase, Marijuana Priority. FinCEN received 42,791 SARs from filers using the key phrase ‘Marijuana Termination’.”

FinCEN began providing guidance to cannabis businesses in 2014 with the goal to to help banking institutions operate while cannabis remains illegal at the federal level.

Why Banks Are Changing Their Tune

Yahoo! News reported earlier this month that HHSrecommendation to reclassify cannabis from a Schedule I to a Schedule III drug could transform the cannabis industry and create new opportunities for banking institutions.

“Rescheduling cannabis to Schedule III may allow dispensaries to accept credit card payments,” Richard Laiderman, former head of global treasury for VISA and Co-Founder and chair of StandardC, said. Credit card payments may supplant cash transactions if this occurs, reducing the risks and costs associated with cash-only operations.”

Cannabis banking expert Robert Baron said, “While changes will inevitably occur, financial institutions looking to serve this market segment must implement risk management tools to evaluate and monitor cannabis businesses. This is where StandardC’s business underwriting & monitoring tools are perfectly suited to meet their Bank Secrecy Act and customer due diligence obligations.”

The HHS recommendation to reclassify cannabis from Schedule I to Schedule III would be a pivotal step—the first of its kind at the federal level—to make the cannabis industry safer for everyone.

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