Marijuana-related businesses (MRBs) are often categorized into one of three tiers based on their business model. These tiers assist in determining due diligence and risks associated with banking MRBs. Marijuana is federally illegal, despite state-legal cannabis programs.
As a result, banks and federal regulators had to figure out how to handle the funds from these enterprises. While some financial institutions and entrepreneurs think Tier II and Tier III MRBs are less risky, there are some important considerations that you should know.
See our guide to cannabis banking for more about the various MRB tiers and developing banking policies to serve them.
What is a Tier I MRB?
A Tier I MRB is product touching. Examples include businesses dealing in seeds, processing, product testing, planting, and other elements of cultivation, and dispensaries. They typically have state license requirements.
Tier I MRBs are generally considered the highest risk. As a result, they are held to the highest standards for compliance, and financial institutions that choose to bank these MRBs face significant compliance burdens as a result. This means enhanced due diligence requirements, as well as ongoing monitoring and assessment.
When it comes to an MRB definition, most people think of a Tier I MRB because they are most clearly marijuana-related businesses.
What is a Tier II MRB?
A Tier II MRB is directly supporting cannabis, or a business whose primary customers are Tier I MRBs. Examples include hydroponic suppliers, packaging suppliers, licensing consultants, industry associations, and marijuana software providers.
It’s important to note that a Tier II marijuana-related business is not typically held to the same standard of compliance. However, financial institutions do still have requirements from FinCEN regarding providing Tier II MRBs financial services. This can make things tricky for bank compliance, especially if the business is not specifically using a payment processor for cannabis. Because most businesses don’t openly declare their interactions with Tier I MRBs, they could face repercussions if the financial institution finds out, including having their bank or merchant account de-risked and shut down.
What is a Tier III MRB?
A Tier III MRB has incidental business with Tier I or Tier II MRBs. This can be a matter of interpretation, but typical examples include lawyers, accountants, food delivery businesses, and property owners.
The element of interpretation comes from what counts as incidental business. Accountants are generally seen as Tier III MRBs, but if an accountant specializes in cannabis businesses and targets those establishments for clients, they could be a Tier II MRB. As a result, their banking and payments could also be subject to the same concerns outlined above.
Doing business across MRB Tiers
In the past, MRBs had challenges getting a bank account or cannabis merchant processing account. Hypur has helped to change that, working with a network of financial institutions so that MRBs nationwide can get sustainable and reliable banking.
A similar issue was access to secure payments for dispensaries, whether with cannabis consumers or B2B transactions within the industry. Hypur helps on both fronts. The Hypur payment platform for merchants is used to allow customers to purchase product quickly and easily using a bank account transfer. Hypur also streamlines accounts receivable, facilitating secure ACH payments for B2B cannabis transactions.
Instead of needing to use cash or shady payment methods and workaround schemes, MRBs can use the same safe, reliable, and consistent payment method regardless of their MRB tier.