Small Banks And Credit Unions: From The American Dream To Cannabis Catalysts

At the recent Benzinga Cannabis Capital Conference in Chicago, experts explored the role of small banks and credit unions in the cannabis industry. With regulatory challenges and evolving services, these institutions are vital for the sector's growth. What drives these smaller players into the cannabis business?

Credit Unions' Role in Cannabis Banking: Regulatory Challenges And Safety Concerns

Sundie Seefried from Safe Harbor Financial explained that credit unions like theirs are chartered to serve underserved and unbanked communities, making the cannabis industry a natural fit. Meanwhile, Regiment Securities' Brent Williams explained their entry into cannabis banking was prompted by safety concerns after an Illinois bank withdrew its services.

However, small banks and credit unions face a significant hurdle - the rigorous regulatory scrutiny tied to the high-risk cannabis sector. Seefried highlighted 16 examinations in seven years due to the Bank Secrecy Act (BSA), with stringent requirements leading to an administrative burden requiring increased staff and ongoing due diligence.

Evolution Of Services And Overcoming Resistance

Financial services for the cannabis industry have expanded gradually, eventually including lending programs with competitive rates.

The panelists explained that the once-strict requirement for funds to be constantly liquid has been relaxed. Nevertheless, the primary resistance to cannabis banking often originates from financial institution boards, driven by concerns about liability.

While management tends to show interest in servicing the cannabis sector, hesitancy mainly resides at the board level.

Lending to Cannabis Companies: Parameters And Significance

Experts discussed challenges in lending to cannabis companies and outlined key considerations for potential borrowers.

They stressed the importance of a comprehensive relationship with financial institutions, including depository and lending services to ensure compliance and responsible fund management.

Real estate-focused lending with favorable rates, preference for cash flow, profitability over projections and the pivotal role of experienced guarantors were highlighted.

The panelists concluded by recognizing the vital role of banks and credit unions in supporting the cannabis industry and enhancing community safety.

Photo by Aaron Burden on Unsplash.