Is Cannabis Commercial Banking a New Financial Opportunity or a Major Security Threat?

As the sale of cannabis becomes legal in an increasing number of states, the prospect of providing financial and payment services to these businesses is seen by banks and credit unions as a rare greenfield opportunity as well as a potential minefield of risk.

For many years, cannabis dispensaries — legal in states like Colorado, California and Washington — were still mostly handled in cash, as most financial institutions and payment providers wouldn’t work with these businesses, which are still illegal in many states and federally. Level. Even if federally chartered financial institutions want to do business with these businesses, they can’t. And the potential for network security breaches from cybercriminals who say cannabis businesses are insecure and less likely to fight back against an attack was also a problem.

However, with cannabis now legal for recreational and medical use in 39 US states and the District of Columbia, as well as 18 states and DC, the opportunity to work with fast-growing businesses in this industry is often attractive. It’s not unusual for many banks to turn down – especially these days, exposing completely new small business banking opportunities.

A bank executive spoke recently at a financial crime webinar hosted by Jack Henry, the bank’s industry service provider, about his bank’s efforts to proactively reach out to cannabis businesses. Mel Barnes, director of the cannabis program at Westtown Bank & Trust, noted that the beginning of any program is a discussion with the bank’s board of directors “about why we want to do this.”

Barnes, who has overseen cannabis banking programs for more than five years, proposed earlier this year that Raleigh, North Carolina-based Westtown Bank & Trust will launch its cannabis commercial banking program, which officially launches in April 2022. (The slogan of the program is “High-Level Banking”.)

“Educating yourself, your management team and your board is important,” Barnes said. “Why do we want to do this?” We must ask.

On the positive side, especially as more and more states legalize cannabis, there are still many of these businesses that remain “unbanked” due to a history of financial institutions and payment providers choosing not to work with them in the early days. On the other hand, aside from the potential compliance and legal issues, many traditional finance and payments companies fear the possibility of attracting the attention of hackers, who may view them as easy prey because these businesses are relatively young and reluctant to fight back. They were given their relatively new legal status.

There can still be some social stigma associated with working with cannabis businesses, Barnes added.

“[Cannabis business] It’s growing and evolving rapidly, and the rules are constantly changing,” Barnes pointed out. But banking and cannabis are two of the most regulated industries, and therefore the most powerful and Very surprising. … This means you have to be ready and willing to put the resources into the cannabis banking program … creating a balance between customer experience and compliance and security.

When it comes to compliance, Barnes acknowledged that financial regulatory auditors may have more questions for banks that work with cannabis companies than “someone selling Nix on the street.” Barnes says that these issues are beginning to dissipate, “They never go away.”

Westtown Bank & Trust works with several third-party technology partners, including IT security company RiskScout, to serve its cannabis business customers.

“Legal cannabis businesses should be able to access the same financial services as other industries,” Barnes said in an April press release.