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Top 5 myths around banking cannabis-related businesses

October 26, 2022
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Key points in this article include:

  1. Risks exist in states where canabis is illegal > LEARN MORE
  2. Ensuring compliance when not servicing CRBs > LEARN MORE
  3. Determine your tier of acceptance > LEARN MORE
  4. Banking hemp vs. marijuana vs. CBD > LEARN MORE
  5. The gray area of banking CBD > LEARN MORE


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Navigating Regulatory Haze: Banking cannabis-related businesses and managing risk


Financial institutions and CRBs

Understand the misconceptions
around cannabis banking

Times are rapidly changing as marijuana laws are passed in states across the nation. Recreational marijuana is legal in 19 states, Washington, D.C., and Guam, and while it remains federally illegal, President Biden has said that he will issue pardons to everyone convicted of the federal crime of simple marijuana possession. Despite 41 states having some form of marijuana legalization, cannabis-related businesses (CRBs) often lack access to traditional banking services. 

Every financial institution in the United States either operates in a state that has legalized or decriminalized a form of cannabis or borders one that has. Given the changing environment, financial institutions should examine their risk tolerance for cannabis banking, including marijuana, hemp, and cannabinoids (CBD). 

Understanding the myths around cannabis banking can help financial institutions can make a better-informed decision to either offer banking services to cannabis-related businesses or avoid cannabis banking relationships.

Stay up to date on federal and state laws relating to cannabis banking.

Know your risk

5 myths surrounding cannabis banking

Risks exist in states where cannabis is illegal

Myth #1: Cannabis is illegal in my state, so the risk is minimal and not of concern.

Just because cannabis is illegal in a financial institution’s state footprint does not mean it can be ignored. With talks of legalization at the federal level heating up once again, banks and credit unions need to be prepared should legalization happen in their state. Every state where cannabis is currently fully illegal borders at least two other states where it is legalized medically or recreationally. Financial institutions need to consider how to handle transactions with CRBs and what to do if they discover a customer or member is operating a CRB or receiving income from a CRB in another state. The first step is staying up to date with all state laws that may affect their customers.

Ensure compliance when not servicing CRBs

Myth #2: Institutions that do not service CRBs simply need to state their decision to be compliant.

When asked if they plan to offer banking services to CRBs, banks and credit unions cannot rely on a simple yes or no answer. Stating that they are or are not planning to service CRBs is only the first step in an extensive list of actions to ensure compliance and do proper due diligence. No matter their decision, banks, and credit unions will have to update their policies and procedures to reflect it.  

Questions for consideration if an institution does NOT offer cannabis banking services include: 

  • How will they handle an account that is found to be tied to a CRB? 
  • Will they offer banking services to indirect CRBs (those not “touching” the product)?   
  • Will they bank hemp-related businesses? CBD-related businesses? 
  • What extra due diligence will they implement to ensure an account isn’t tied to a CRB?    
  • What transaction monitoring will be performed to ensure there are no CRBs in the institution’s customer/client base? How will they effectively identify and manage CRB-related risk?  

Determine your tier of acceptance for cannabis banking

Myth #3: All CRBs carry the same amount of banking risk

There are multiple tiers to cannabis-related businesses. Steven Kemmerling, CEO of CRB Monitor, first introduced the idea of CRB tiers in 2016 to differentiate the types of marijuana-related businesses and their perceived risks.

The tiers are broken down as follows: 

Tier 1 – Direct  

This tier includes businesses that touch the actual cannabis plant at some point and those that have a financial or controlling interest in businesses that do. This tier has the highest perceived risk for financial institutions.  

Tier 2 – Indirect with “substantial” revenue from Tier 1  

This includes companies that sell cannabis or CBD products and derive a majority of their profits from those products. The definition of “majority” or “substantial” is defined by each financial institution’s risk tolerance. This tier is of moderate risk to institutions.  

Tier 3 – Indirect with “incidental” revenue from Tier 1 

Companies that fall under this tier can include CPAs, payroll companies, cleaning companies, etc. that service Tier 1 businesses. While these businesses earn some profit from Tier 1 companies, it is a nominal amount of their overall business. This tier is the lowest risk to financial institutions.  

As BSA officers analyze each level of risk during the risk assessment process and decide their risk tolerance for banking CRBs, they should define how to handle the different tiers as well. While the tiers are not official regulations, they are a good industry standard to adopt when defining where a financial institution’s risk tolerance stands. This analysis is critical to the final decision-making process by the board of directors and executive management.

Hemp vs. marijuana in banking

Myth #4: Banking hemp is the same as banking cannabis.  

The term cannabis covers hemp, marijuana, and CBD, which all come from the same cannabis plant but have different properties. Marijuana is cannabis with over 0.3% Tetrahydrocannabinol (THC), the psychoactive properties tied to the drug, while hemp is cannabis with less than 0.3% THC and has a variety of uses as an industrial fiber. CBD can fall into either category depending on its THC content. The passing of the 2018 Farm Bill removed hemp from the Controlled Substances Act (CSA) and made it federally legal as long as certain requirements are met. States may still regulate hemp production, so BSA professionals need to reference the state and local laws where they have branches and/or customers. Because hemp was removed from the CSA, there is much less risk to banking it as opposed to marijuana or even CBD. 

The gray area of banking CBD

Myth #5: CBD businesses are becoming more common and therefore are not as high-risk

CBD is a grey area in the cannabis world. If a CBD product contains less than 0.3% THC, it falls under the hemp category and is federally legal. But when the product contains more than 0.3% THC it is still considered marijuana. Testing CBD products for their THC levels is not well regulated, which makes many CBD products a gray area on the cannabis spectrum. Financial institutions should consider the source, extraction process, and laws when considering offering banking services to CBD-related businesses. Additionally, the Food and Drug Administration, which regulates food and health-related products, has not approved CBD for consumption or medicinal purposes. This adds another layer of risk associated with CBD and the way it is sold and used by the consumer.

Keep up with regulations

Stay informed and develop a plan

Financial institutions need to be aware of common myths around banking CBD, hemp, and marijuana-related businesses so they can properly assess their risk profile.  Developing a thorough CRB risk analysis as part of an enterprise-wide risk assessment will enable an institution to truly understand the risk and speak to its regulators. If they decide to provide banking services, they should staff and price accordingly. Until federal and state laws align, staying informed and is key to controlling the inherent risk associated with these higher-risk businesses. 

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About the Author


Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo’s platform centralizes the institution’s data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth. Make Big Things Happen.

Full Bio

About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

Make Big Things Happen.