What Banks Must Consider When Offering Financial Services To CRBs

Guest commentary prepared by Michelle Sullivan with Dama Financial

Michelle Sullivan, DAMA FinancialTo date, 33 U.S. states and the District of Columbia have legalized cannabis in some form. Yet, cannabis remains federally illegal, causing government regulated financial institutions to view legal cannabis businesses as high-risk. As such, few banks are willing to take on the legal risk of working with businesses in the cannabis industry, and the ones that do charge hefty transaction fees without much added value.

With limited access to financial services, about 70% of all cannabis-related businesses use cash for all their transactions. Cash-intensive operations can pose major threats to public safety, incur high costs to properly manage and be vulnerable to employee theft. In the cannabis industry, 10% of all financial and product loss is attributed to external robberies that some businesses attempt to combat with security equipment and armed guards — a costly risk to manage. Even with those safety measures in place, employee theft still contributes to 90% of total loss in the industry.

From an efficiency perspective, cash ridden CRBs operate at a fundamental disadvantage. With cannabis sales expected to reach $75 billion by 2030, CRBs need to establish a reliable, online financial framework to thrive and scale. 

Skepticism aside, viable financial solutions for CRBs exist and are readily available. There are more financial institutions providing cannabis banking services than ever before. It does not go without risk, however. Financial institutions must consider several factors before they decide to dive into servicing a high-risk category such as cannabis.

Financial institutions must consider safety and soundness before taking any deposits. This must include being able to tell your story as to why you are choosing to service these types of accounts; it can’t just be about the potential revenue opportunity.

Regulators are going to expect a very detailed documented analysis that ensures the financial institution is thinking through the risks versus the rewards. For example, it is very important to have board-approved risk limits, such as establishing thresholds for deposits, to ensure you do not have a concentration of cannabis deposits. Be able to identify the number of accounts but also the volume of deposits in these accounts that your institution will allow. In addition, a board-approved cannabis policy should outline the fundamentals of your program. This includes, at minimum, requirements for enhanced due diligence; red-flags monitoring; regulatory reporting, such as SARs, CTRs and policy escalations for suspicious activities, just to name a few.

Most important, financial institutions need to conduct a profitability analysis that details out what resources, either with human capital or technology, you may have to invest in to service this compliance burden industry. Significant resources are necessary to responsibly bank this industry. Having a comprehensive risk and compliance program that can grow with your program is key.

Whether a financial institution chooses to provide these services directly or work with a third-party provider, there is a lot to consider regarding maintaining a stable and compliant cannabis program. 


This article, published in the October 2019 issue of The Missouri Banker, was submitted by MBA associate member Dama Financial. Dama Financial is an agent of its partnering financial institutions and licensed money transmitters and allows financial institutions to grow responsibly through increased deposits and fee revenue without investing in additional technology and human capital or paying fees to Dama.

For Dama, technology is a core component of its company values. Not only is it used to fuel Dama’s best-in-class compliance program, it is an integral part of the services and products that Dama releases and the reason why Dama’s customers are able to operate efficiently and effectively.

At MBA’s 2019 Executive Management Conference in St. Louis, Michelle Sullivan will discuss the regulatory perspective, supervisory expectations and best practices associated with providing banking services to cannabis-related businesses. Her session is Friday, Dec. 6.