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Cannabis Banking Legislation: Where are we now?

Apr 28, 2022

In this episode of CannaCast, Partner and leader of EisnerAmper’s Cannabis and Hemp Group, speaks with Becky Postar, the Chief Operating Officer of Higher-Risk Deposit Compliance Solutions, Inc., a company that provides solutions to financial institutions that are interested in banking in the cannabis industry.


EisnerAmper:Thanks for tuning into this episode of CannaCast. I'm your host, EisnerAmper's National Cannabis and Hemp Practice Leader. I am honored to be joined today by Becky Postar, the Chief Operating Officer of Higher Risk Deposit Compliance Solutions, Inc. Higher Risk Deposit Compliance Solutions provides comprehensive solutions to financial institutions that are interested in banking the cannabis industry, by offering a banker led and managed solution. Becky has over 20 years of banking experience, including commercial lending for small and large financial institutions. And she is an expert on the cannabis industry specifically with regard to regulations and legislations. Welcome Becky.
Becky Postar:Hey, thanks for having me. It's an honor to be here. I can always talk about these topics.

Becky, many banks say they're precluded from banking in the cannabis industry or banking cannabis companies, is that really true?
BP:It depends on who you're talking to in the industry. Most individuals that are in financial institutions, and when I say financial institutions, I'm referring about banks, FDIC banks and NCUA regulated credit unions, banks and credit unions. And if you're talking to them, they're going to say, "No, they don't bank the industry." And then when you're talking to the industry, they all seem to have a bank. It's interesting and I refer to the numbers.

FinCEN, every quarter, releases their marijuana banking update, which it releases how many marijuana SARs are filed and latest one, which was released September 2021, there were 755 financial institutions that reported marijuana related SARs and SARs are a suspicious activity reports. And so the financial institutions have to file those on every one of their marijuana related clients, who they call marijuana related clients. Us and the industry call them cannabis related businesses. But because that's how this plant is listed legally on the controlled substance app, banks will use the word marijuana.

But anyway, so there were 755 banks that reported, filing SARs in September 2021. And I want to share an example of in September 2020, there were 677 financial institutions that filed those. That's just a difference of 78 financial institutions in one year. That's very little and the United States has around 12,000 financial institutions, of about 7,000 banks, 5,000 credit unions. And out of that 12,000, only 755 are filing the SARs and out of that 755, I would estimate there's about 200 financial institutions, less than 200 financial institutions, that are actively and openly banking the industry.
EA:Why do many banks decide not to bank in this industry and who is banking the industry?
BP:Right. That's a really good question. The majority of financial institutions are not interested in banking the industry for a few reasons. Number one is because cannabis is still considered a federally illegal drug. According to the controlled substance act. It is a schedule one drug and financial institutions, even state chartered financial institutions, are required to follow federal regulation and are regulated by federal regulators. Therefore, if it's federally illegal, a financial institution could be considered aiding and embedding by allowing a company that is depositing money that's derived from a federally illegal business.
EA:What about credit card processing? I often hear many people talk about workarounds. Is there really a legal workaround?
BP:Not that I know of. There's some that I'm more comfortable with. There are some that financial institutions are more comfortable with and those are processors that are actually, they have a bank themselves. And what we call an ODFI, those funds that are coming through the processor are actually going through a bank and going through a risk based anti-money laundering program. There are some that we're more comfortable with. And then there are some that we're not so comfortable with. They actually will send money offshore, which is technically money laundering. There are companies that they're still risking it really altogether for financial institutions, but there are some that they are more comfortable with than others.
EA:Now you talked a little bit about the financial or the reporting requirements for companies that are in this industry. And aside from that and the obvious, what's different about banking cannabis companies as opposed to say, for example, a manufacturing distribution company?
BP:Okay. That also goes back to elaborating on one of your earlier questions is why they don't want to. And one of the main reasons is regulators will consider cannabis related companies, they're deemed higher risk. And that higher risk is they're referring to higher risk for anti-money laundering. With that, even if federally legal, there are not a whole lot of financial institutions that are willing to bank higher risk companies altogether like casinos, online gamblers, crypto currency companies. Even if federally legal, we're not going to see all financial institutions opening up their doors.

There's still going to be a limited few that are interested in the risks. And even if federally legal cannabis will still be considered higher risk for money laundering, due to the fact that cannabis is one of the only companies in the United States where the state legal and compliant companies are competing with and operating next to the illicit or black market. And so financial institutions that want to bank the industry, and I'll tell you the reasons why the ones that are doing it are doing it, the banks that are doing it have to ensure to their regulators, that they have the best practices in place for preventing money laundering. That that money coming into their financial institution is from state legal sales.
EA:Becky, what is the Community Reinvestment Act and why is it important to cannabis companies and banks?
BP:Well, one of the conversations that I have frequently is because one of the solutions for financial institutions would be the passage of the safe banking act through Congress. Not just the house, but also even have its minute on the floor in the Senate because it does have bipartisan support in the Senate. If it had its minute on the floor, it would more than likely pass, but more than likely, it may not get that chance because the main senators that are blocking it from getting onto the floor, are doing so because they are wanting broader reform, which I understand and respect, broader reform mainly around the social equity piece. And one thing I want to point out when it comes to safe banking, financial institutions are already required by regulators to make sure they are not redlining. And that's where the Community Reinvestment Act comes into place.

It started in 1977 and it requires finance institutions to provide their services, including loans to everyone in their community. And it's the lower income, it's the definition, even the lower income people within their community. Within the financial institution, within safe banking, there are already is social equity. Now the Community Reinvestment Act is not perfect. There is always room for improvement when it comes to social equity and communities, but that also leads me to the point I mentioned earlier about why financial institutions are entering the space.

And it's a lot of the financial institutions that are following their own motto, their mission statement. Most financial institution within their mission statement, states that they want to give back to their community and serve their community. And financial institutions that take that really seriously figure out how they can safely bank the community.
EA:For those that aren't aware, the Safe Banking Act is a secure and fear of enforcement act. But also kicking around is the MORE Act, the Marijuana Opportunity, Reinvestment and Expungement Act. And this is another bill that was passed by the house, but stalled in the Senate. And this bill would remove marijuana from the list of drugs in the schedule one of the controlled substance act. Which would effectively legalize cannabis at the federal level. And it recently passed the house again, just last week. Do you see this bill actually passing, becoming legal, becoming a law?
BP:Maybe one day. There's two others that have a lot of attention too. The MORE Act was originally introduced by our current vice president. I was hopeful after this recent re-election that maybe we would see something like that passing quicker. But again, the same senators that are also blocking the Safe Banking Act have also written their own legalization bill that they are supporting. There could be a potential of a different one passing the Senate, but then would it the house?

And then there's another one in the house that I believe is going to be introduced within the next 30 days, by a Republican that is a little different than the other two legalization bills. This one's more of just decriminalizing and then letting the states decide what they want to do. And it has actually, which is quite interesting to me, a higher tax rate than the other two. The MORE Act to me was very significant in passing the house and I don't think it's going to pass the Senate, but yet it's really interesting in my lifetime to see this prohibition breaking down.
EA:Now, you talked about some other acts that have been kicking around the GOP house member, Nancy Mace from South Carolina introduced the state's reform act, which is I guess, the GOP proposal as opposed to the MORE Act. What are the differences between the two and do you see that would have a better chance of passing? Because I think that's also getting some flack from other Republicans as well as the democratic side?
BP:Right. The biggest issue with the Democrats with the states act is there's no not social equity written into the bill. And the fact that the war on drugs has been very detrimental to our society as a whole and everything that comes down from that. And that's the one thing that that bill is really missing, other than the fact that it does have more bipartisan support with just always helpful. And I'm old school when it comes to federal legalization allowing the state to determine how they want to handle that.

I like that the states would still get to decide how they want to handle the legalization. And that means that it allows local municipalities to determine how they want to deal with it. That is interesting to me. It's more of a matter of when it will be federally legal, versus if and the decriminalization part is still really interesting. I'd like to see more of that within the municipalities, across the United States. Because even in my state of Texas, hardly anything with THC or CBD is legal around here, but more and more counties are decriminalizing.
EA:Becky, besides cannabis what other industries are you working with these days?
BP:Cryptocurrency. We help financial institutions deal with the regulatory burdens of cryptocurrency. Especially very recent due to the Russian/Ukraine war situation, in that Russia's been able to skirt around a lot of the sanctions by investing in cryptocurrencies. And now financial institutions are going to be burdened with demonstrating to the regulators that they're on top of the currency transactions that are coming through their financial institution and that none of those are supporting Russian actions.
EA:Becky, my last question, and I know you talked a little bit about your feeling, you being old school, but do you see federal legalization happening any time soon?
BP:Yeah. I really think a couple years ago I was saying within the next 10 years. Now, I'm probably saying within the next five or seven years. This next election in 2022 will help me gauge a little bit better. I think. What happens in Congress to me is almost as predictable about what happens with this sweet 16. You think you have an idea and then someone changes their opinion or changes their mind. I can guess, it's an educated guess, but it's still a guess.
EA:Great. Well thank you for joining me today, Becky. I appreciate your thoughts and thanks for listening to CannaCast as part of the EisnerAmper podcast series. Visit for more information and podcasts. And please join us for our next CannaCast podcast where we'll discuss other budding issues.

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