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The cannabis industry is growing exponentially, and nationwide sales are estimated to exceed $30 billion in 2022.

This growth comes with extraordinary opportunities for banks to offer services to the still largely unbanked and underbanked cannabis industry. Board members and C-suite executives cannot afford to ignore the potential impact of cannabis on their bank in 2022, whether they are banking it or not. Here’s some trends that the industry should be on the lookout for.

More states will legalize marijuana in 2022
The website Ballotopedia is tracking over a dozen proposed marijuana legalization initiatives as of September. These include attempts to legalize marijuana for medical purposes in Wyoming, Idaho and Mississippi, medical and adult uses in Nebraska and adult recreational uses in Arkansas and Ohio. Any kind of legalization in Nebraska would be significant; it is currently the only state with no loosened legal restrictions on marijuana possession or use. Banks located in states without a legal marijuana program, including adult or medical, may see that change by the end of 2022 and need to start planning now for how this could affect your bank.

Marijuana licensing and sales will begin in states that legalized or expanded their programs in 2021.
Marijuana-related business (MRB) licensing and sales don’t begin the day after it’s legalized. A governor’s signature is just the first step. Legalization requires months of work by a newly appointed marijuana regulatory authority to develop the actual regulations — the infrastructure — that make licensing and sales possible. 2022 can expect to finally see sales in states that legalized marijuana in 2021.

There’s no guarantee that any federal marijuana legislation will pass in 2022.
There are currently two major proposed bills that would loosen federal policy towards marijuana: the Secure and Fair Enforcement Banking Act (SAFE Banking Act) and the Cannabis Administration and Opportunity Act (CAO Act).

The most attractive to banks is the SAFE Banking Act, which would ensure federal regulators could not take adverse action against banks that provide services to state-legal MRBs. It would also require the Federal Financial Institutions Examination Council to establish uniform exam guidelines for evaluating marijuana banking programs. This legislation passed the House of Representatives by a comfortable margin in 2020 and again in 2021, but has yet to make it to the Senate floor for a vote.

Senate leadership has made it clear that passage of the CAO Act is their priority, with Sen. Cory Booker (D-NJ) going so far as to say, “I will lay myself down to do everything I can to stop an easy banking bill […] as opposed to focusing on the restorative justice aspects.” There’s been another attempt in the House to push through the SAFE Banking Act as an amendment to the National Defense Authorization Act but there’s no guarantee this will be included in the final version of the bill. As a result, banks shouldn’t count on the SAFE Banking Act passing in 2022, with Senate leadership focused on the CAO Act.

In 2022, cannabis banking will move from “nice to have” to “unavoidable.”
Something new we’ve seen this year is that an increasing number of institutions are building cannabis banking programs because they risk losing high-worth customers if they don’t. For instance, a bank in the Midwest was approached by a member of a prominent farming family that had decided to start growing marijuana. They were upfront about their plans and made it clear that, despite a multi-generational relationship with the bank, they were prepared to go elsewhere if necessary.

We saw something similar in the South: a major customer decided to pivot from growing flowers in their greenhouses to marijuana, and the bank decided to release their marijuana restrictions only after they lost a good part of their customer’s business to a cannabis-friendly competing financial institution. Banks risk losing valuable customers in 2022 if they do not establish cannabis banking programs.

Due to a combination of widespread destigmatization, a steady march of state-by-state legalization and the immense business opportunity of this industry, an increasing number of banks are building lines of business to benefit from this market — or at the least, avoid losing customers to it.

To learn more about what this industry will look like in 2022, and the financial modeling and risk assessment behind successful programs, click HERE.

This year has been a significant and active one in the world of anti-money laundering (AML) compliance. Digital payments are taking the world by storm, regulators are cracking down on new types of fraud and the U.S. government has pledged to be more proactive in enforcing AML laws.

Regulators have not been idle, issuing fines to banks around the globe totalling $10.6 billion in 2020. But it hasn’t been enough to deter fraud rates. What can banks expect for AML regulations for the remainder of 2021, and how can they prepare? Here are the main trends in AML compliance of 2021, and their impact on financial institutions.

1. Much-Needed Updates From Anti-Money Laundering Act of 2020
The Anti-Money Laundering Act of 2020 (AMLA) is arguably the most transformative AML law in a generation. AMLA amends the Bank Secrecy Act (BSA) for the first time since 2001 and modernize it for today’s money-laundering and fraud climate. For several years, regulators have focused on modernizing AML compliance programs at banks, encouraging innovation and improving the coordination and transfer of information between financial institutions. AMLA could have a significant impact toward these goals when coupled with regulators’ ongoing efforts.

Financial institutions are now required to have AML officers who can quickly incorporate reports into their transaction monitoring programs. It brings even more pressure for banks to modernize their operations through better technology. AMLA also allows the U.S. to subpoena records related to any account at foreign banks that maintain correspondent accounts in the United States, enabling the regulators and the government to fight money launderers who seek to take advantage of the lack of communication between countries to commit international crimes.

2. Tightening UBO Laws
Under the AMLA, the Financial Crimes Enforcement Network (FinCEN) requires certain companies to file information on the beneficial owner of the reporting company, along with the identity of the person who has applied to form or register the company. This is part of the overarching trend of gathering more information on your customers.

Customer due diligence is now a more complex and lengthy process to gather the right types of information. This goes hand in hand with the Corporate Transparency Act (CTA), which requires financial institutions to verify customer information against FinCEN’s Ultimate Business Owner (UBO) registries. Verifying UBO information can be costly and time-consuming, especially since most countries have not published public ownership registers.

3. Better Software, Better Tech
Regulators around the world are pushing banks to use better software and incorporate emerging technologies. As financial fraudsters get more intelligent with their approaches, the only way for banks to fight back is with technology that matches those capabilities and can adapt to new threats. Compliance teams are increasing in size and expense. The benefit of better software is that many of these processes can become automated, which helps keep costs down.

4. Crypto Regulation
The novelty of virtual currencies allows fraudsters use them to their advantage while escaping regulators’ purview. According to Chainanalysis’ 2021 Crypto Crime Report, 270 cryptocurrency addresses received $1.3 billion in illicit digital coins in 2020.

How is the U.S. approaching the regulation of cryptocurrencies? Several agencies have been involved with the regulation of virtual assets, including the U.S. Securities and Exchange Commission, Commodity Futures Trading Commission and FinCEN. From an AML perspective, the biggest change has been to require cryptocurrency exchanges to complete a Know-Your-Customer (KYC) process for every customer.

5. SAFE Banking Act
The SAFE Banking Act aims to normalize cannabis banking and reduce the risk of liability for banks that offer services or loans to MRBs (marijuana-related businesses). To date, the SAFE Act has not been passed into law, and payment processing remains a confusing space for banks and MRBs alike. Under the administration of President Joseph Biden, however, there is hope that the industry will see a marijuana policy that reduces confusion at the federal level.

What are the overarching trends this year? AML laws are encouraging financial institutions to be more transparent, implement better technology and build more comprehensive customer profiles. Banks that want to be proactive will need to ensure their policies are up-to-date with the new regulations, their infrastructure can integrate more data sources and their KYC processes are automated, while also offering a great customer experience.