Cannabis Banking: Mitigating Reputation Risk to Financial Institutions

Paul Dunford
January 21, 2020
Read Time: min

Compliance and anti-money laundering (AML) is going green… or is it? One of the biggest questions concerning Bank Secrecy Act (BSA) and AML professionals is how to handle cannabis and marijuana-related businesses (CRB/MRB) in a constantly changing legal landscape. Are they safe to bank? How do you bank them? How do you know there isn’t a CRB or MRB hidden in your current accounts?

The banking industry knows it has a growing problem on its hands when it comes to CRBs and MRBs. While they are working towards a resolution, it leaves bankers in a cloud of smoke. It would be impossible to talk about cannabis banking in 2019 without mentioning the Secure and Fair Enforcement Banking Act of 2019 (SAFE Act). Intended to “increase public safety by ensuring access to financial services to cannabis-related legitimate businesses and service providers and reducing the amount of cash at such businesses,” it was passed by the House of Representatives in September. While it seems highly unlikely that it will pass the Senate, it’s notable that 76% of the House voted in favor of the legislation, with the near-unanimous support of Democrats and a majority of Republicans. This sort of bipartisan support would have been unthinkable a few years ago when a politician’s safest bet was to either condemn marijuana or avoid the issue altogether for fear of invoking the ire of their constituents, and it demonstrates a profound shift in how lawmakers view cannabis.

Normalization of cannabis was a dominant theme in 2019, and this should encourage financial institutions that want to offer services to the cannabis industry. However, because of a long-standing fear that a government agency or regulatory body would take action against them solely because they offer services to cannabis-related businesses (CRBs), it’s no surprise that financial institutions say, “We’re very interested in banking cannabis, but we’ll wait for the SAFE Act to pass.” This stems in part from something I’ve heard banks and credit unions express: by engaging with the cannabis industry they expose themselves to an unacceptable risk to their reputation. They don’t want to be the “weed bank.” Because it is subjective, reputation risk is the hardest to quantify, and therefore the most challenging to mitigate.

In December, the United States Government Accountability Office released a report to Congress that addressed compliance challenges associated with money transmitter accounts. In many ways, one can look to money transmitter business as an analogue to cannabis-related businesses because they are both high-risk, cash-intensive businesses. What the GAO found is that one of the top five reasons financial institutions choose to avoid or close the accounts of money services business is reputation risk (“the potential that negative publicity regarding an institution’s business practices, whether true or not, will cause a decline in the customer base, costly litigation, or revenue reductions”). If financial institutions are wary of offering services to a category of businesses that are federally legal, one can infer that they are motivated by similar concerns about CRBs.

2019 saw a series of actions that could lead financial institutions to reconsider whether the risk inherent in banking CRBs should dissuade them from doing so. After all, the trend in government seems to indicate a steady change in attitude toward cannabis, paving the way for financial institutions to conduct business with CRBs with a greatly reduced risk.


The SAFE Act isn’t the only example we can point to as evidence that federal lawmakers are shifting their stance on cannabis. Senate Majority Leader Mitch McConnell was a major supporter of the Agriculture Improvement Act of 2018 that legalized the production of hemp, defined as cannabis with 0.3% or less tetrahydrocannabinol (THC). Previously the Controlled Substances Act had made no differentiation between marijuana, containing the psychoactive substance THC, and hemp. While an advocate for the descheduling of hemp, that same year he referred to marijuana as its “illicit cousin which I choose not to embrace,” yet in October he met with cannabis business owners and advocates during a trip to California.

Department of Treasury, FinCEN

FinCEN’s 2019 September Marijuana Banking Update suggests that at least 723 financial institutions in the United States are banking cannabis, an increase of nearly 50% over the previous year. This was determined based on the number of financial institutions that filed Marijuana SARs (Limited, Priority, and Termination) so that figure doesn’t include those banks and credit unions that are either unknowingly banking cannabis businesses or are doing so without following the guidelines FinCEN published in 2014. While we can’t necessarily take this number at face value, it does suggest that financial institutions are less cautious about revealing these activities to the federal government.

Department of Justice

Even though Jeff Sessions rescinded the Cole Memo in January of 2018, I have been unable to find any evidence that the Department of Justice and/or its associated law enforcement agencies have acted against any legal cannabis businesses since then. Additionally, in August of this year, DEA Administrator Dhillon announced that the Drug Enforcement Agency would take steps to increase the number of growers eligible to produce marijuana for federally-authorized research. He stated, “We support additional research into marijuana and its components, and we believe registering more growers will result in researchers having access to a wider variety for study.”


Get help clearing the air around banking or avoiding cannabis-related businesses.

State Banking Regulators

In October the California Department of Business Oversight (DBO) announced that they “will not bring regulatory actions against state‐chartered banks or credit unions solely for establishing a banking relationship with licensed cannabis businesses.” In this guidance document they recommend bank examiners take advantage of the Cannabis Job Aid published by the Conference of State Bank Supervisors, an industry advocacy group headquartered in Washington, DC. Updated as recently as December to incorporate the hemp production regulations published by the United States Department of Agriculture in October, this living document has served in many states as the de facto examiner toolkit for assessing cannabis banking programs.

They are not the first state banking regulatory agency to do so, following a 2018 announcement from the New York Department of Financial Services that they “will not impose any regulatory action on any New York State chartered bank or credit union solely for establishing a banking relationship with a medical marijuana-related business that operates a compliant business in New York.” This suggests that states with legal cannabis programs are no longer willing to wait for the federal government to pass legislation like the SAFE Act to protect financial institutions that choose to work with CRBs. I believe we will see more state banking regulators join them in 2020.

National Credit Union Association

In August Chairman Rodney Hood asserted in an interview with Credit Union Times that the National Credit Union Association will not sanction credit unions solely for their decision to offer services to cannabis-related businesses. While this was not ultimately released as formal guidance, it marked the first time a federal banking regulator made any kind of statement in support of cannabis banking.


To sum up, even though it’s unlikely that the SAFE Act will be signed into law, it’s a high-profile example of one of many events from 2019 that demonstrated the willingness of lawmakers and financial regulators to adjust their stance on the cannabis industry. What’s clear is we’re seeing continued progress towards more formal and mature regulatory expectations for FIs looking to partner with the cannabis industry in order to fuel business growth.

For these institutions, the key to mitigating reputation risk lies in their ability to maintain a robust controls environment that takes current (and future) regulatory requirements and business considerations into account. This starts with assessing the risk of introducing a new line of business, and extends into policy and procedure development, board and staff training, and of course using the proper systems to maintain effective oversight of the program. To learn more, view our latest webinar on cannabis banking and the changes 2020 will bring here.


About the Author

Paul Dunford

Green Check Verified Co-Founder, Director, Program Development Paul is a co-founder of Green Check Verified, where he is the Director of Program Development. Paul oversees the development and management of compliance programs for Green Check Verified’s clients, with a focus on state-level compliance as well as compliance around federal guidance. Paul is an experienced solution and deployment/support architect who has led enterprise-scale digital transformation and mobile enablement initiatives across retail, healthcare, and education.

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