Key points from BMD’s banking and cannabis webinar – Cannabis & Hemp



United States: Key points from BMD’s banking and cannabis webinar

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The cannabis industry has been one of the fastest growing industries in the United States in recent years, if not the fastest, and there is no sign of slowing down. Growth requires capital. Banks need loans and cannabis companies, which are quickly becoming bankable, need access to lower cost bank loans. While cannabis remains illegal at the federal level, a barrier to accessing credit for financial institutions, banks and credit unions are nonetheless entering the market in increasing numbers.

With the sponsorship and support of the bankers associations of Arizona, Colorado, Ohio and Utah, BMD organized an elite panel of bankers, banking and cannabis regulators and executives of the cannabis industry to address this specific issue in a webinar titled: Banking and Cannabis: Cannabis Lending, the Next Frontier.

Tanner Daniel, vice president of congressional affairs for the American Bankers Association, delivered a keynote address, sharing his perspective on the state and outlook for the federal banking and cannabis legislation currently pending with the 500 webinar attendees – approximately 75% of whom were bankers representing more than 200 banks, including a dozen of the 56 largest. Here are some of the main takeaways:

  • Follow the money; Huge opportunity for the banking and cannabis industries. Reports since the start of the year indicate that cannabis industry borrowing in 2021 could approach $ 5 billion +/-, three or four times 2020 levels, with only a very small percentage of those loans made. by banks. Even at prime plus 3-4%, that translates to hundreds of millions of dollars in interest income for banks and interest savings for cannabis companies.

Author’s Note: The cannabis industry’s appetite for borrowing will continue to increase dramatically for the foreseeable future, and as demand increases, the percentage of cannabis companies becoming financially attractive bank customers will also increase. Over the next 5-10 years, many, if not most, states that have not yet done so are likely to at least legalize medical marijuana, and many or most that have legalized or will legalize medical are likely. to legalize leisure, translating into a continuous and significant increase in the demand for capital, including loans.

  • The perfect as an enemy of the good. While
    the SAFE Banking Act (“SAFE Act”),providing safe havens for banks and other financial institutions,
    is probably the fastest way, its progress is being held back by the desire of many to do more through a number of broader proposals.
  • Come out of the shadows and get into the mainstream.Whether or not any of the pending federal laws are passed, the number of banks tracking money in the cannabis markets will continue to increase. The growth of the pie and those competing for their taste will encourage others to join the fray.
  • As the elephant shrinks in the room, the deterrent impact of federal illegality risks will likely continue to diminish. While no one can guarantee that there is no risk involved in doing business with the cannabis industry, it seems that they are gradually becoming more theoretical than real, mitigated by
    • The island effect of federal guidelines on how to provide banking services to the cannabis industry without violating federal anti-money laundering laws provided by the Financial Crimes Enforcement Network (“FinCEN”), an arm of the Department of US Treasury responsible for enforcing these laws
    • A largely passive approach of banks following FinCEN guidelines from federal banking regulators and the Department of Justice.
      • Banks that do business with the cannabis industry do so with the knowledge of their federal regulators, typically working with them to develop policies and procedures, and those that do have not been subject to adverse regulatory action. .
      • Likewise, the DOJ has not actively pursued foreclosures and other enforcement initiatives against these banks, and is prevented by federal budget amendments from continuing operations in accordance with state laws. medical marijuana laws. While the budget amendments were not changed to include the state’s legal recreational activities, there is no evidence that the DOJ approaches these activities any differently.
    • There is security in numbers.
  • The inevitable intersection of banks and marijuana-related businesses (“MRB”); In for a dime, in for a pound. As the cannabis industry continues its explosive growth, more and more good existing and potential bank customers, even those located in states that have not yet legalized marijuana, will have or will establish financial or future relationships. ‘other business relationships that will place them under the definition of FinCEN MRBs, making it almost inevitable that even banks that have not made an affirmative choice to build relationships with cannabis companies find it necessary to meet the requirements Expanded Due Diligence Guide.
  • The more things change, the more things stay the same. While acknowledging that lending to the cannabis industry involves different risks and issues than accepting deposits, the Bank and Banking Regulatory panelists generally agreed that the main difference in due diligence would be dictated. by conventional credit analysis standards rather than FinCEN guidelines.
  • Unintended consequences as drivers of change.
    • Cannabis executives on the panel noted that the lack of financial services available to the cannabis industry not only complicates their business operations, but also has a negative effect on the personal lives of their employees – the difficulty of opening bank accounts. or get mortgages.
    • It was also noted that even the IRS and state tax services, which are not set up to handle the huge sums of money generated in the form of tax payments, were supporters of the banking industry. cannabis.
  • Keep your eyes on credit unions; Keep your friends close and your enemies closer. Federal credit union regulators have been much more progressive and aggressive on cannabis issues than their banking counterparts. Rodney Hood, former president and currently a member of the board of directors of the National Credit Union Association (“NCUA”), has been a strong supporter of the need for regulators to act, even if Congress procrastinates.

Author’s Note: Politics make strange bedfellows, and while banks and credit unions have been historical rivals, there seems to be a community of interest worth tapping into.

We are planning a sequel to the webinar delving into “weeds” potential topics including: (i) security interests: what can you get and how can you get it; (ii) receivership as an alternative to bankruptcy; (iii) asset foreclosures – what is the risk and how to mitigate it; and (iv) decipher the financial data of cannabis companies.

Your comments and suggestions for a sequel would be welcome and should be directed to Steve Lenn, at [email protected], and Jamie Young, at [email protected] If you are interested in recording the webinar or accompanying program material, click here.

The content of this article is intended to provide a general guide on the subject. Specialist advice should be sought regarding your particular situation.

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