Banking barriers broken: Harmonizing bankers and marijuana entrepreneurs as a matter of business
In the rapidly changing landscape of the cannabis industry, bankers are finding new opportunities to support the growth of licensed operators. Comprehension of market dynamics is crucial, allowing bankers to craft strategies that resonate with operators and address their unique needs.
The cannabis industry, which encompasses both recreational users and medical patients seeking high-quality products, presents a diverse clientele. Understanding this market is equally important for bankers, as it enables them to create more tailored financial solutions.
Historically, banking conversations around cannabis have focused on compliance-related questions. However, having deeper insights into an operator's business, along with appropriate BSA/AML controls, allows bankers to make informed decisions about lending to the cannabis industry.
Cash flow, profitability, and access to credit are top concerns for cannabis operators. The rescheduling of cannabis could potentially impact cash flow, making operators more profitable. A recent survey of licensed cannabis operators revealed that just over half were satisfied with the banking products and services available to them, indicating a significant opportunity for improvement.
Bridging the gap between traditional banking practices and the unique needs of cannabis operators can boost a financial institution's balance sheet. By adapting to the industry's needs, financial institutions can contribute to the sustained growth of the cannabis market.
Several community banks and credit unions in the United States have expanded their compliance programs and banking services for recognized cannabis businesses. Safe Harbor Financial's Fully Managed Cannabis Banking Program, which handles compliance, operations, and client onboarding, has enabled these institutions to serve the cannabis market without internal expansion or added risk. Since 2015, Safe Harbor has processed over $26 billion in cannabis-related deposits across 41 states.
As more states legalize cannabis, the consumer base is becoming increasingly reflective of society at large. This transforming industry is attracting diverse clients and moving away from less desirable locations.
Bankers aiming to stay competitive must understand the needs of their cannabis industry customers and offer new products and services. Nearly 80% of surveyed cannabis operators expect the industry's profitability to remain the same or improve over the next two to three years. However, potential changes to tax code Section 280E could have a significant impact on the cannabis industry's profitability.
The evolution of the cannabis banking landscape continues to present opportunities for growth and competition. A financial institution's existing commercial lending program can be extended to the cannabis banking space using similar criteria as for any other loan application. This growth opportunity could be significant as competition intensifies.
In conclusion, the cannabis industry offers a promising future for those willing to adapt and engage. By understanding the industry, its challenges, and the needs of its customers, bankers can create a more prosperous future for themselves and the cannabis operators they serve.
