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Number of Banks, Credit Unions Working With Cannabis Stabilizes Following Decline



Following multiple quarters of decline, recently published federal data shows that the number of banks and credit unions that report working with cannabis businesses was stable over the last quarter.

There were 684 banks and credit unions that filed reports saying they work with cannabis clients, as of March 31. That number stayed the same in comparison to the previous quarter, though it is down from its peak, 747, which it reached in late 2019.

There were a number of reasons why the last three quarters of 2020 showed those numbers in consistent decline: one reason was the revised reporting requirements from the Financial Crimes Enforcement Network (FinCEN), another the COVID-19 pandemic.

FinCEN is part of the Treasury Department and stopped including hemp-only businesses in quarterly reports after the crop was federally legalized under the 2018 Farm Bill. This accounts for at least part of that dip, being that previous figures counted hemp-focused accounts.

“The number of depository institutions (DIs) banking marijuana-related businesses (MRBs) appears to have leveled off from a decline that started at the end of the 1st Quarter FY2020 (December 2019). The decline coincided with the release of guidance by FinCEN and financial regulators on providing financial services to customers engaged in hemp-related business activities.” FinCEN said in the recent quarterly analysis.

The COVID-19 pandemic, FinCEN said, “may be adding to this apparent decline due to state imposed restrictions or closures and potential delays in SAR filings.”

Banks and credit unions are required to submit SARs if they plan to provide financial services to cannabis businesses, under FinCEN guidance established by the Obama administration in 2014. And, at least until this recent downward trend, the number of banks and credit unions taking on cannabis clients stayed gradually increasing.

“Short-term declines in the number of depository institutions actively providing banking services to marijuana-related businesses (MRBs) may be explained by filers exceeding the 90 day follow-on Suspicious Activity Report (SAR) filing timeframe,” FinCEN said. “Several filers take 180 days or more to file a continuing activity report. After 90 days, a depository institution is no longer counted as providing banking services until a new guidance-related SAR is received.”

While the number looks stable, it is possible that it could soon skew upward, should congressional legislation allow these institutions to work with cannabis without penalty from federal regulators.

The US House recently approved the Secure and Fair Enforcement (SAFE) Banking Act, though it still has yet to be passed and remains in the Senate. The SAFE Banking Act states that it, “generally prohibits a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business.”

Many banks and credit unions have been cautious to work within the cannabis industry, which in turn has forced cannabis businesses to operate on a cash-only basis, which often makes them larger targets of crime and can be complicated to manage for financial regulators.

One of the criticisms keeping the act from passing is the opposition of moving forward with cannabis banking legislation before the legislative body takes measures to approved federal cannabis reform, like the bill Senator Cory Booker (D-NJ) and Senate Majority Leader Chuck Schumer (D-NY) recently unveiled.

Senators Jeff Merkley (D-OR) and Steve Daines (R-MT), and sponsors of the Senate version of the SAFE Banking Act, argued a markup of legislation would help to address this urgent issue of public safety.

“This is not simply a matter of banking. The inability of these state-legal entities to bank their significant cash reserves is an issue of public safety,” they wrote, specifically in regard to robberies and armed burglaries as increasing risks of operating cannabis dispensaries.

Currently, the SAFE Banking Act has 39 cosponsors in the Senate, where it will see its next vote, but the future relationship of banks, credit unions and cannabis remains to be seen.