The cannabis market is rapidly growing due to increasing public acceptance and state-level legalization. According to New Frontier Data, the U.S. cannabis industry is projected to generate sales of $72 billion per year by 2030. The economic opportunities are significant, and while the risks of banking this industry are complex, a growing number of community banks are entering this line of business.
Lending has emerged as an important component of cannabis banking programs, for both bankers who are new to the industry and those with significant cannabis banking experience. Lending not only benefits the bottom line but also helps banks attract the most desirable operators in the industry.
Cannabis-related businesses (CRBs) are actively seeking bank lending to support investments from real estate purchases to equipment upgrades. Lending to CRBS provides an excellent opportunity for banks to generate new earning assets and gain additional yield. In addition to enhanced yields, cannabis banking programs continue to be net providers of low-cost deposits.
Make Informed Lending Decisions
Lending to the legal cannabis industry poses unique challenges. Bankers need to be well-versed in the credit and compliance fundamentals of CRBs, which includes in-depth cash flow analysis, licensing review, and thorough due diligence on cannabis-related collateral. By recognizing these risks and adopting the appropriate risk-mitigation measures, bankers can make well-informed lending decisions.
The Shield Compliance Cannabis Lending Guide helps bankers understand the nuances of lending to the cannabis industry, navigate the risks associated with cannabis operators and cannabis-related collateral, and unlock the financial rewards of this industry. It covers the following topics:
- BSA/AML Risks Associated with Cannabis Lending
- Direct and Indirect Loans
- Credit Risks Associated with Cannabis-Related Businesses
- Understanding Cannabis-Related Collateral
- Mitigating Credit Risk with BSA/AML Data
- Alternative Lending Opportunities
Increased Competition Demands a More Customer-Centric Approach
As competition in the cannabis banking space intensifies, financial institutions are under pressure to deliver more customer-centric services. When it comes to meeting their compliance obligations, implementing strategies to achieve greater efficiency can dramatically lessen the burden on both their bankers and their customers. Employing technology to automate compliance tasks and aid in ongoing monitoring can also improve the customer experience.
Shield Compliance transforms how financial institutions serve the legal cannabis market. Its purpose-built BSA/AML compliance management software solution sits behind the financial institution to simplify compliance, automate processes across multiple data sources, create efficiencies, unlock new revenue, and scale operations.
Since its inception, Shield has partnered with 60 financial institutions and monitored 5.6 million transactions including $25 billion in deposit volume. In 2022, Shield’s financial institution customers earned $24.4 million in non-interest income from service charges. As of January 31, 2023, its partner financial institutions have $754 million in deposit balances and $90 million in loans outstanding from over 4,600 CRBs representing more than 11,500 active cannabis licenses.
Get the Shield Compliance Cannabis Lending Guide