Community banks and credit unions have been neck and neck races for mortgages, auto loans, and even commercial deals for decades. And already now, the cannabis banking market is proving to be just as competitive.
As states began legalizing the drug, credit unions gained an early advantage in their willingness to take deposits from cannabis companies, but banks are pushing to increase lending in this area.
One factor that gave credit unions an early boost was that the National Credit Union Administration is the “most sensible” regulator since financial institutions did business with cannabis companies, said Tyler Beuerlein, chief revenue officer at Hypur Inc., based in Scottsdale, Arizona ., Technology and payments provider that helps financial companies operate in highly regulated markets such as cannabis.
The NCUA has looked to support credit unions behind the scenes after making an early decision to treat cannabis sellers like any other high-risk industry, Beuerlein said. In comparison, banking regulators tended to be more difficult at the beginning of the process, he said.
And this rigid stance has, in many cases, affected the financial institutions they regulate.
But banking regulations could soon be relaxed. The SAFE Banking Act, which aims to provide some clarity to cannabis bankers, was passed by the US House of Representatives earlier this year, but has yet to be approved by the Senate.
Banks can also have an advantage in their sheer size. According to the Financial Crimes Enforcement Network, 174 credit unions and 510 banks reported that they were providing some services to the marijuana industry as of March 31, based on suspicious activity reports mentioning key terms related to cannabis sales. In comparison, 107 credit unions and 334 banks had submitted reports in this area in the second quarter of 2018. Some reports indicate that the cannabis business complies with state laws and the bank or credit union will continue to do business with it; others indicate that based on their findings, the bank or credit union intends to terminate the business relationship.
But credit unions remain competitive in this market. When Kings Garden, a Californian cannabis cultivation, processing, distribution and manufacturing company, looked for a banking partner, it found no buyers among the traditional banks.
The company instead turned to Salal Credit Union for all of its banking operations.
“We haven’t been able to do banking with a traditional bank,” said Lauri Kibby, Kings Garden co-founder and chief financial officer. “We are very pleased with our experience with credit unions. It has advanced app-based banking functions, wire and ACH functions and fast response times. “
Seattle-based Salal, which is worth $ 1.1 billion, opened its first cannabis-based deposit account in July 2014. After a period of market shakeout, it granted its first loan to the sector in September 2014.
As the cannabis industry has grown, the credit union has added more services, according to Russell Rosendal, President and CEO of Salal.
“Cannabis companies have access to all deposit and cash management services. We have a cash pickup service that goes out to businesses to reduce the risk to business workers and limit cash in our branches, ”he said.
Salal realized that because of the cash base of the cannabis industry, there would be a significant security risk to businesses and the community if those companies were unable to obtain traditional banking products, Rosendal said.
“We recognized our responsibility to work with the government and law enforcement agencies to oversee the industry while reducing the illegal market,” he said. “We also saw the opportunity to build an industry with untapped potential in the areas of health, wellness and community economic development.”
Despite the regulatory uncertainty, banks are already on the rise, according to Beuerlein. Seven years ago, most of the institutions that actively ran the market had assets of less than $ 1 billion. But over the years bigger and bigger institutions have made the decision to get into this space, and most of them are banks.
One of the bravest newcomers to the cannabis banking landscape is an investment bank with over $ 50 billion in assets that has already expanded its program to several states, Beuerlein said. He wasn’t going to identify the bank, which he thought had gone to great lengths to stay out of the public eye.
“Banks seem to be the most aggressive (expanding into new markets) and the size of the banks I’ve seen entering the market lately has been impressive,” he said.
Rosendal von Salal admits that banks have some advantages, but says credit unions benefit from personal service, knowledge of legal and regulatory requirements, and a willingness to listen to each company’s unique needs.
“We are not pigeonholing the cannabis industry,” he said. “Our solutions are tailored to the individual needs of our members. We know this is a journey and we know we need to listen to and learn from our companies and other third parties. “
CFG Bank, with $ 1.9 billion in assets in Lutherville, Maryland, began serving the cannabis industry in March 2021.
President and CEO Bill Wiedel said the bank sees a need in the market for more efficient funding as the Maryland cannabis industry is in expansion mode and there are only two institutions in the state involved in the business.
The bank has an advantage over some smaller players because of the size of the deals it can offer, Wiedel said. “We are able to lend up to $ 30 million, which gives us an advantage,” he said.
In addition, the bank’s relationship managers enjoy a good reputation for their creativity in structuring transactions and for their speed with the lending process. “We are very entrepreneurial in the way we do business and the entrepreneurs who own these businesses appreciate that,” he said.
Wiedel says the SAFE Banking Act will “definitely” increase competition, but the resulting regulations will not be enacted for two or three years.
Kibby said that while federal agencies have stated that they will not override state cannabis laws, it remains a very complicated issue for most banks and many fear excessive rules, compliance burdens, missteps and sanctions. That is keeping most banks and some credit unions from working with the industry, she said.
“As a result, businesses, workers, and communities in several states are forced to handle cash because of conflicts between state and federal law. This creates logistical challenges and poses a threat to security for many. Companies that hold large sums of cash are clearly vulnerable to robbery, ”said Kibby.
The SAFE Act won’t have much of an impact on competition or the general state of cannabis banking in the United States, Beuerlein said.
“This is and will remain a cash-intensive business,” he said. “As a result, it will be a significant burden of risk and regulatory compliance for any institution attempting to do banking. The overwhelming majority of licensed cannabis operators already have banking operations in the United States. This is by no means the crisis it is portrayed as. “