A few weeks ago, Missouri voters approved a ballot measure legalizing adult-use cannabis, joining 20 other states with similar legislation. The law went into effect on December 8, with the first retail licenses set to be approved by early February. While Missouri has had a medical marijuana program in place since 2020, the introduction of an adult-use program represents a significant expansion of the market. According to MJBizDaily estimates, Missouri’s first-year adult-use sales could reach up to $550 million, with fourth-year sales projected to generate $800 to $900 million.

As we’ve seen in other states, a new legal market for adult-use cannabis brings a surge of new businesses and capital. To ensure the processes, procedures, technology, and trained staff to serve this industry are in place, bankers need to start with a plan. Fortunately, a playbook exists to help bankers understand both the opportunities and the risks related to serving cannabis-related businesses (CRBs) and navigate this new market successfully. Here are a few points from that playbook to keep in mind.

Understand the Realities of Cannabis Banking

While banking this line of business offers compelling financial benefits such as new low-cost deposit growth, non-interest income, and the potential for earning assets, banks need to make sure they are grounded in the realities of the cannabis industry and the strategic business reasons for getting involved.
A clear understanding of what is required to serve CRBs and minimize risk to the financial institution will help bankers determine if this industry is a good fit for their institution.

Update Policies and Procedures

Banks will need to update their existing policies and procedures to reflect the compliance and regulatory requirements of this industry or develop new ones if necessary. Cannabis banking will touch almost every aspect of the business, from audits and insurance to cash transporting and processing and even branch security. As new businesses enter the industry, you’ll need to have rigorous risk assessment standards and procedures in place to ensure you’re banking legal funds and have a clear line of sight into the business and its beneficial owners.
Meeting compliance requirements includes developing the systems, applications, and onboarding processes that allow you to vet potential customers and access critical customer and transaction data, all while delivering a positive customer service experience.

BSA/AML Compliance

As a banker, you’ll be responsible for ensuring your cannabis clients are operating within state guidelines. Having systems and processes to help you reconcile data from multiple sources can help you do that efficiently and accurately. Investing in specialized BSA/AML compliance technology will help your bank operate more efficiently, allowing compliance staff to focus their time, energy, and brainpower on judgmental decision-making, analysis, and customer service.

Staff Training

While technology will help make your staff more efficient, you’ll also need to hire or train specialized cannabis bankers who have a deep understanding of the industry. This knowledge will help them better monitor customers’ business activity while allowing them to deepen their customer relationships.
Both bankers and customers should expect high levels of transparency in their operations and interactions. This can pay additional dividends down the line, as strong, open relationships yield positive referrals.

Be Prepared for Increased Competition

As an emerging industry, banks should anticipate ongoing market changes and be prepared to adapt to remain competitive. Specifically, there is significant interest in how changes to federal cannabis policy will impact banking. While we do not believe the passage of federal reform, such as the SAFE Banking Act, would change the compliance and due diligence required for this industry, it would be an important step toward removing the regulatory uncertainty in the market and would open the door for more financial institutions to serve the industry.
With the U.S. cannabis industry projected to reach $41.4 billion by 2025 and strong growth projected for Missouri (and neighboring Illinois), you can be certain that more financial institutions will enter this market in the coming years. Increased competition typically comes with more competitive terms for the customer, so you’ll want to be ahead of the curve and be ready to sharpen your pencil when that time comes.

As President and Chief Executive Officer of Shield Compliance, Tony leads day-to-day operations and is the company’s principal product architect. Having served as a senior executive at a Washington State-based community bank for over 25 years, Tony has in-depth knowledge of the banking industry and the regulatory and compliance requirements for high-risk industries. Today he brings that knowledge to financial institutions serving and considering serving the legal cannabis industry.