Can banks permissibly serve marijuana-related businesses?
The Obama Administration decided as a matter of policy to permit state legalization of marijuana initiatives to proceed without federal intervention, except in extraordinary circumstances.
With respect to the banking of marijuana-related businesses (MRBs), this policy of deference to state legalization is reflected in two documents issued on February 14, 2014 – the Department of Justice’s Cole Memorandum [UPDATE: the Cole Memo was rescinded on January 4, 2018, but it had no effect on marijuana banking), and a corresponding FinCEN Memorandum.
The memos identify eight priority factors that will guide federal enforcement of anti-money laundering (AML) and Bank Secrecy Act (BSA) laws with respect to the banking cannabis businesses. These factors include preventing: the distribution of marijuana to minors; the sale of marijuana from going to criminal organizations and cartels; and the diversion of marijuana across state lines.
MRBs that avoid implicating any of the eight priority factors, and banks that service them, are effectively immune from federal enforcement of AML/BSA laws, so long as the DOJ and FinCEN memos remain in place. Taken together these memos constitute a roadmap for how to permissibly bank MRBs, and are an acknowledgment that the state marijuana legalization experiment cannot succeed without banks.
While banking MRBs remains prohibited by federal law, it is permitted by federal policy.
What sets Hypur apart?
Cash Intensive Businesses (CIBs) pose significant challenges for banks and credit unions with respect to AML/BSA compliance, which is why a number of banks are systematically cutting ties with these industries, a practice known as “de-risking.”
Hypur recognizes the societal harm associated with legitimate businesses being denied access to the banking system. We also recognize the opportunity for community and regional banks and credit unions to serve their communities by providing banking services to CIBs – if they had the tools to do it.
For financial institutions with the willingness and capability to serve CIBs, Hypur has technology tools to help them seize the opportunities created by de-risking.
Bridging the gap between regulatory requirements and profitably banking CIBs requires technology.
Traditional banking systems are not designed for financial institutions to service CIBs in the current regulatory environment. Hypur is unique among Fintech/Regtech companies because we are dedicated to servicing a specific market – CIBs.
Hypur alleviates much of the time-consuming and error-prone manual processes in banking and managing CIBs. Hypur’s platform includes items such as granular transaction control, business intelligence information, automating initial and ongoing enhanced due diligence and document management, unusual activity detection, regulatory reporting, and real-time transaction monitoring.
With our focus on the unique needs of serving CIBs, Hypur is uniquely situated to address the challenges of banking MRBs. The key to satisfying federal requirements is transparency, and Hypur’s platform provides financial institutions with unprecedented levels of transparency into their MRB customers.
With Hypur, financial institutions can account for every dollar of marijuana-related revenue, ensuring that cash deposits align exactly with point-of-sale transactions.
Reducing the reliance on cash
Using Hypur’s technology, financial institutions can enable MRBs to secure payments for dispensaries. Hypur’s payment application can help transition the marijuana market from an antiquated cash-based model to an electronic account-to-account transfer model that is seamless, secure, and provides “know your customer’s customers” level transparency.
Hypur’s electronic payment product is also a significant revenue generator for financial institutions, which charge a fee for transactions conducted using Hypur’s platform.
A complete solution
While other vendors may provide a limited number of these features, Hypur’s platform is the only integrated, sole-source solution for servicing CIBs in general, and MRBs in particular.
The fact that state-legalized marijuana is still in its infancy represents a tremendous opportunity for Hypur to influence an entirely new market. Whereas other CIBs are having to adapt existing procedures to a challenging regulatory environment, MRBs and the banks and credit unions that serve them are effectively starting from scratch in establishing compliance standards and practices.
Hypur’s technology platform and the transparency it provides can transform the once stigmatized MRB market into the most transparent, and thus least risky, of all CIBs.
The bottom line is that under existing federal policy financial institutions can permissibly service MRBs in states where marijuana has been legalized and Hypur enables them to service MRBs in a way that minimizes risk and maximizes profit.