If you want to serve the cannabis industry, be prepared for a long and confusing process, representatives from JPMorgan Chase and Peoples Bank North Carolina told conference-goers at American Bankers Association’s Financial Crimes Enforcement Conference in Washington D.C. on Sunday.
In a panel titled “Banking the Marijuana Industry,” Heather Allen, first vice-president and Bank Secrecy Act officer at Peoples Bank North Carolina, Dan Kim, assistant general counsel for Global Financial Crimes Legal at JPMorgan Chase, and Michael J. Bresnick, a partner at a multistate law firm Venable, said that bankers would have to conduct thorough risk-assessments, spend time with regulators once they’ve come up with a plan, ask tough questions to ensure that the cannabis businesses they serve remain compliant, and have an exit plan should the businesses violate laws.
“Is everyone’s head spinning yet?” asked Bresnick.
Bankers need to decide whether they want to invest the time and resources needed to serve the cannabis industry, Allen said.
“You’re going to need to really understand the industry, you need to understand what particular requirements exist within your state and what requirements exist in contiguous states to you, as well,” Allen said.
And, based on the questions from bankers in the audience, many are still trying to wrap their heads around the difference between hemp and marijuana. Both are of the genus Cannabis, though hemp in the US is defined as having .3% THC or less.
The banking industry has long been hesitant to serve cannabis businesses due to the legal gray area created by the inconsistencies between federal and state laws, and extra work required such as filing mandatory suspicious activity reports. Still, the number of banks serving the industry has risen over the years, following a 2014 Financial Crimes Enforcement Network (FinCEN) memo that provided rules for banks seeking to work with cannabis businesses.
The SAFE Banking Act, which would solve many of these banking hurdles by protecting financial institutions that serve state-legal cannabis businesses from federal prosecution, passed in the U.S. House in a historic vote in September, but it faces a tougher path to passage in the Senate.
Until federal law changes, much of how a bank decides to serve the cannabis industry depends on its board’s appetite for risk. The most important conversation bankers should have when considering banking the cannabis industry is with the board, said Kim. It’s up to individual banks to decide whether they’re comfortable banking growers, processors, retailers, a mix of these operations or all of them, the panel said.
When it comes to banking cannabidiol (CBD) businesses, the panel cautioned bankers to have their guard up. If you go to Walmart and see CBD gummies, that product is in violation of the Food and Drug Administration’s rules, Kim said during the panel. But at the same time, CBD products are everywhere, he said.
JPMorgan Chase is banking hemp as well as hemp-derived CBD businesses, Kim told Cannabis Wire. “When it comes to CBD and hemp, given the fact that it is no longer a controlled substance, we definitely are more amenable,” Kim continued.
As for the broader cannabis industry, including higher-THC products, Kim said that he doesn’t have any insights into the company’s opinion on whether or not to serve these types of businesses, but that they’re “definitely considering it internally.” As for ancillary businesses in the cannabis industry, that is “probably more on a case-by-case basis” for the bank, Kim said.
Allen with the Peoples Bank North Carolina, on the other hand, said on the panel that they would not bank a retailer that sells CBD edibles, as the FDA does not approve of them. The FDA released a statement in late November outlining the agency could not conclude that “CBD is generally recognized as safe (GRAS) among qualified experts for its use in human or animal food.”
And as Cannabis Wire previously reported, four federal agencies and state bank regulators issued a statement on December 3 emphasizing that “banks are no longer required to file suspicious activity reports (SAR) for customers solely because they are engaged in the growth or cultivation of hemp,” as long as all parties are following the law.
Despite hemp being legalized under the 2018 Farm Bill, “many banks and other financial institutions have been slow to participate, blaming their fear of the risk of federal regulatory crackdowns,” Jonathan Miller, general counsel to the U.S. Hemp Roundtable, told Cannabis Wire last week, adding that the guidance “removes much of that concern.”
The statement was issued by the Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Financial Crimes Enforcement Network, the Office of the Comptroller of the Currency, and the Conference of State Bank Supervisors.