The Green Scene: Cannabis and Community Banks

As the legal cannabis market continues to grow, many community banks and credit unions are looking for ways to support this thriving industry. Banking cannabis brings its own set of challenges and regulations, but with the right partners, it can be a lucrative opportunity for financial institutions.  Cannabis is now legal for recreational use in 21 states, and DC. Furthermore, it is approved for medical use in 37 states.

Green Check Verified works with numerous banks and credit unions all over the country to help them navigate the complexities of cannabis banking. The team of experts has years of experience in the industry, including Senior Vice President, Peter Su, who we sat down with to discuss the topic further.  Peter is an expert in cannabis banking with many years of experience on the banking side including stints with East West Bank and Dime Community Bank. Peter understands risk, the intense regulatory scrutiny banks are under, and how to work with regulators to ensure cannabis banking is in line with state and federals laws. In the end, cannabis is a legal business in 37 states and will continue to scale. Community banks need to take a hard look at the potential upside & risk and decide to partner with the right companies in the industry.

Tune into our latest conversation where Peter and Keith Daly, Principal, Banking & Fintech Search at Travillian, discuss tips for banks on how to enter the cannabis market and where to start.

The Green Scene: Cannabis and Community Banks

1:41 | About Peter Su & Cannabis Banking 

Keith Daly: What’s your view on where we are in the cannabis banking process from a regulation standpoint and what questions might a community bank or smaller banks have that are looking to go into the market?

Peter Su: Yeah, great question. Something I talk about often and I like to think I’m fairly, uniquely suited to answer that question for you and for your audience.

I was a longtime banker myself and on my last couple of stops, I did spearhead the cannabis banking program for community banks. Developed a de novo program for a bank in New York and grew it from the ground up to I daresay one of the larger programs in the country. I then was recruited to another large community bank and that became the largest program in the country.

In my current role at Green Check Verified, we work with banks and credit unions that are banking cannabis. Our current roster is 126 banks and credit unions all over the country that are banking cannabis. Anecdotally, that makes us about half of the market as it currently exists.

So the point is, yes, it is a topic on which I influence and can definitely address for you. The state of cannabis banking today, I think does exist in a weird almost myth kind of realm, where there is this belief that there’s no banking available and that’s not true.

FinCEN has this statistic. They say there are 755 financial institutions, so banks and credit unions, that are banking cannabis. Now, most insiders would agree that that number is way too high. We believe the number is more like 200, maybe 250ish.

It’s still significant. You are still talking about hundreds of institutions, right? So whether it’s the 700 number or the 200 number, it’s hundreds of institutions across America. Now it’s worth pointing out. You take that number, and you divide it against the states that have a program, to your point, it does still mean that there’s only a handful of institutions in any given state that is banking cannabis. So the state today is not that they’re unbanked, they can get an account but they’re definitely underbanked with the question of capability, capacity, and cost.

5:08 | Legal & Initial Questions to Ask When Getting Started

Keith: Do you have to be in a state that it’s legal or of these 37 states, is it more the banks that have a state charter or a national charter?

What are some of the questions that should be asked initially? Say I’m a $1 billion community bank in New Jersey, for instance. What are some of the questions I should be asking before I even reach out to you or Green Check Verified about going down that road? Are there some initial questions you can have?

Peter Su: The first I would say is that there’s no need to wait, right? If you want to talk, give me a call, happy to chat. Even if it’s the most basic question. And believe it or not, what you just said, those are the questions that we commonly get. We have been engaged where literally board members say to us, “Can we do this? Are we violating a rule? Are we violating a law?”

Things like that. Despite what I’ve just said, 755 based on FinCEN, 200, 250, based on industry insiders, the reality is the first initial questions we get are very rudimentary. Is this possible? You know, will I go to jail?

Things like that type of question – Do you have to be in the state? Well, look, banks, they’re going to do only what’s legal, right? If you’re not in a legal state and your bank only does business in that particular state, then no, there’s no legal cannabis business in your state.

As you know, the charters, the way they work these days, you’re not prescribed from going into another state to do banking. So sure, if you’re a bank in New Jersey and you’re banking a cannabis business in New York, as long as it fits within your risk criteria and your policies then there’s nothing preventing you from doing that.

Now, it is pretty common and believe it or not, a well-known myth in cannabis banking, which is that you can only bank outside of federal banking. You and I know there is no such thing as banking outside of the federal banking system.

It’s mostly state-chartered banks, state-chartered credit unions or state-regulated credit unions and or state-regulated banks that are in the state and predominantly smaller banks

7:50 | What Profiles Green Check Verified Is Seeing from Banks / How Cannabis Banking Has Grown

Keith Daly: What profile are you seeing now from banks? Is it a certain asset size? Smaller? Is it more rural or more urban?

It’s just another industry. So, you’re helping them. And if they’re underbanked, like you’re saying, they don’t have a lot of options. If you can provide a great product and help these industries grow, there’s a lot of potential there.

Peter Su: I think that the time is perfect actually right now.

What the industry needs really are just more banks, right? Bigger banks, more capacity. And I think the dynamic is changing very quickly. Now look, it’s a relatively young industry, right? Call it 10-plus years, just around 10-plus years. And if we start from like, California, Colorado, et cetera, it’s come a long way in the early days. The industry was unbanked, like literally unbanked.

No bank, no credit union. Their money. They used to pay their taxes in cash. People used to literally drive down to the local Fed.

An entire hot industry grew up around servicing those needs. So these CIT services that are specifically catered to cannabis, for example, would then provide their services to the retailers. They would pick up their cash and drive it to the local Fed in order for that company to pay its taxes and again, that wasn’t that long ago.

Peter Su: I think there’s always a natural evolution of progression to these things. Now I do think you are starting to see larger banks in the space, and by that I mean, I’m aware of a $55 billion bank that’s in the space.

Commercial bank, full-service commercial bank, another $60 billion community bank that’s in the space, you know? Now from there, there is a pretty steep drop. You get down into the 10 to 12 billion range, our median, so my roster is probably around $3-4 billion.

We do have that $55 billion institution as our client. And then the next tier down is a $12 billion one. That number is ticking up and of course, it makes sense, right? As that number pool increases, eventually, you get the larger players getting in and saying, hey, I see opportunity here.

11:16 | Similarities Between Banks That Are Getting Into Cannabis Banking

Keith Daly: Is there a particular similarity that you see between the banks that are looking to go down this route or that are on your roster? Do they want to be more tech-forward or is there some similarity in leadership or talent that you’re seeing between the banks that are in this industry?

Peter Su: I don’t know if it’s a coincidence or not but logically to your point, it’s a question of sort of this, institutional psyche, right?

They tend to be the type of institution that is okay with risk management. So they have other high-risk verticals. Perhaps they do MSBs, perhaps they do crypto, et cetera, et cetera. And it makes sense if you have a BSA department that you believe in, you’ve gotten great exams and you have confidence in saying, hey, I can take a little extra risk.

I can be okay. Or, hey, I’ve done high risk before and we’ve passed those exams with no problems. Those tend to be the institutions that always say, hey, why not cannabis?

You brought up talent and I do think that that’s very important. Almost underrated important. Having the BSA mindset that says, hey, there’s a FinCEN 2014 guidance, right? So, there’s actually a well-trodden path of how to do this. And my BSA officer has looked at this and says, I know exactly how to do this.

13:17 | Can You Get in Trouble for Cannabis Banking? 

Peter Su: Believe or not, the answer is no. No banks, no credit unions, have ever gotten into trouble for banking cannabis. Now, one credit union was to get a slap on the wrist. Right? But even in that scenario, they were not told to stop doing cannabis, but what the regulators essentially said to them was, hey, you’re no good at this.

So, not stop doing it, but hey, you better get some help. If you want to keep banking cannabis, maybe you need third-party help. To your point, that talent, that experience, the know-how of how to do something is very important.

14:12 | Green Check Verified Advice / What Services Do They Provide?

Keith Daly: Say I’m the CEO of a $2 billion bank in Pennsylvania, what kind of services could you provide to me coming in as I don’t know much? What can you provide me to make sure I’m going down? What type of services do you provide?

Peter Su: This is exactly what we do. A soup to nuts. Anything that an institution might want or need, we provide. Actually, funny enough, when Green Check Verified first started, the founders, and I’m not a founder, the founders were all software people.

They thought that they would build software that banks and credit unions could use in their cannabis banking programs. As it turns out, banks and credit unions were not knocking down their doors to buy the software and so we had to build an entire consulting practice around it because we had to do a lot of that handholding.

Like, get the CEO, get the board comfortable, and then yes, implement the software. So yes, walking an institution from beginning to end and then installing the software if they want that, that is what we do. That said, in a more specific sense, hey, let us show you the policies that you should put into place. Let us show you the risks you should be considering, and the type of personality you should be considering. Things like that.

16:51 |A Growing Industry With Stigmas 

Peter Su: When I do these engagements, I tend to say, think even bigger, right? You’ve got property owners that now are leasing to a cannabis business.

Maybe they have trouble getting the financing. Right? And if you think about that, that’s a normal CRE deal. That’s a normal commercial real estate deal that you’re getting the opportunity that you may not otherwise get because of simply the word cannabis.

It’s got a stigma. Absolutely. The stigma is really strong. Oftentimes we will literally build an entire program and at the end of that journey, they still seem hesitant. And we’ve actually had this scenario where we take them to a local cannabis industry, a trade show, whether it’s NECANN or something like that. And when they see how professional the industry is, they’re actually surprised. They’re like oh it’s a real industry.

Keith Daly: Yeah. It’s huge. You went to that one in Vegas a couple of months ago, right?

They rent out the whole Vegas convention center, which is, I mean, might be the largest in the country or one of the largest in the world. And we’re just talking about the US. I mean, you’re not even talking about the global industry.

It’s immense. It’s a real industry, there has to be regulation around it, of course.

And there is of course, and that’s good. That’s why you’re going through the banking system and that’s why you have a Chief Risk Officer and you have a BSA Officer and top talents.

Do you have any other advice to community banks, or executives, or board members?

Peter Su: Of course. I would say that it doesn’t necessarily have to be me or my company. We have competitors. I would say when you think about the optics of saying to your regulator, hey, look, we we’re thinking about doing this and we’ve added to our bench.

Someone who has gone through more bank exams with cannabis than anyone else in the country, right? I guess the point is, don’t go down this journey alone. There are plenty of resources at this point. The American Banking Association have regular seminars on cannabis banking now.

It’s not like the early days of just kind of making it up. No, there’s real help out there, professional now, that can be good.


Travillian’s Banking and FinTech Practice provides Search and Talent Advisory services to depository institutions across the country. Established in 1998, the firm has built a unique platform that touches every corner of the industry. To learn more, click here, or get in touch below!

Keith Daly, Principal -Banking & Fintech Search
(610) 908-5968 | kdaly@travilliangroup.com

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