Seeking new growth? Consider Cannabis Banking In January, Illinois became the 11th state in the country to legalize recreational cannabis. Fast forward six months, amidst a global pandemic and one of the worst unemployment crises in American history, Illinois marijuana retailers saw their busiest month on record in June, reaching more than $47.6 million in sales. Eventually, the state’s cannabis program is expected to generate up to $2.5 billion in annual revenue. Yet, much of this industry remains unbanked. The ongoing conflict between state and federal law on cannabis has kept many financial institutions on the sidelines of this lucrative industry. However, other enterprising bankers are making cannabis banking part of their growth strategy, using the tools and technologies available today to bank this industry compliantly and cost-effectively.
Shield Compliance supports banks serving the legal cannabis market in Illinois, and in states across the U.S. Our platform operationalizes critical risk-management processes and automates the collection of data required to bank this industry safely, while also facilitating the new client onboarding process. Designed by bankers for bankers, our approach to compliant cannabis banking allows financial institutions to operate more efficiently so they can scale their programs to meet the growing demand for their services.
As the coronavirus pandemic continues to cause economic disruption, the legal cannabis industry offers banks the opportunity to expand and diversify their portfolios, as well as build a low-cost funding engine that allows them to keep the cost of funds under control in an eventual rising rate environment. While there are many benefits associated with serving this industry, here are three ways cannabis banking can support your bank’s growth strategy now and into the future.
1.
Cannabis banking can provide reliable non-interest income. As net interest margins compress, banks should look to non-interest income business lines to support overall profitability. Cannabis companies are in dire need of quality banking solutions and are willing to pay upwards of ten times the amount of traditional business service charges. Assessing substantially higher base account charges, often without the benefit of an earnings credit to offset those charges, means there are untapped cash management fee opportunities. Together, these fees can fully offset the operational cost of providing a cannabis banking program.
2.
Compliance technologies can reduce costs and support remote banking. Many banks serving cannabis customers are using valuable human capital to manage their compliance. Platform technologies, like those offered by Shield, make it possible to automate these processes, significantly reducing the labor and expense required to conduct the systematic due diligence this industry demands. Cannabis banking technologies can also enable contactless payments, and handle client applications, account underwriting, and risk assessment via remote, online processes.
3.
Longer-term, cannabis banking can provide a source of low-cost deposits. The pressure to grow and attract low-cost deposits may wane momentarily but will continue to be a long-term driver of bank profitability. Increasing those deposits now will protect future profitability as the economy improves.
While your bank may want to wait for federal legalization before providing financial services to this industry, there is a significant first-mover advantage for banks serving this industry today. The ability to build new customer relationships, earn enhanced fee income, and gain access to new sources of low-cost deposits early on could be a game-changer when federal legalization eventually occurs.
Let us show you how Shield Compliance is helping banks earn the benefits of a cannabis banking program. Please visit our website at shieldbanking.com or contact us directly: Brian Storey: brian@shieldbanking.com 425-276-8235
• 14 •
• September-October 2020
