The SAFE Banking Act has passed the House and is on its way to the Senate for the fifth time since its introduction in 2017. (For a comprehensive look at the Act and what it means for cannabis companies and financial players, read our recent blog, The SAFE Banking Act Passes Congress: Here’s What it Means for CERES.
While this is good news for cannabis companies that want to get access to federal banking services, the passing of the SAFE Banking Act has brought up another challenge that many traditional banks will have a hard time implementing – compliance. Even if the Act passes the Senate and is signed into law by president Biden, most banks still won’t be able to work with cannabis companies due to a lack of compliance tools.
The BSA is the primary federal law that impacts the cost of compliance for banks working with cannabis companies. To comply with the BSA (Bank Security Act), banks serving the cannabis industry will have to follow AML (anti-money laundering) laws and produce SAR (Suspicious Activity Reports) reports for all of their clients.
While banks are required by law to conduct due diligence and ongoing monitoring on all of their customers, the requirement is more extensive on cannabis companies. Because the sale of marijuana falls under illegal activities under federal law, banks are required to report all financial activities they conduct with cannabis companies as possibly constituting illegal money - even though these companies exist in states where the sale and use of marijuana are legal.
How many banks work with marijuana businesses? Of approximately 12,000 banks across the country, 710 banks and 150 credit unions reported serving marijuana businesses (according to the latest March update from FinCEN). To mitigate the risks and improve compliance reporting, most of these financial players had to charge cannabis businesses hefty transactional and monthly account fees to pay for the extra workforce and time needed to ensure the companies are compliant.
According to CERES CEO Greg Anderson, “The problem with banking regardless of the Safe Banking Act is compliance. Compliance is expensive and will likely cripple or make banking impossible for all but the largest banks unless they have a compliance system. We see this as another opportunity to expand and for further adoption since we are, at our core, a compliance company.
Within the CERES blockchain, producing SAR reports and enforcing AML requirements is much more affordable for traditional financial institutions. Our recent SEC qualification for CERES Coin and CERES Token and our recent patent to use stable coins for transactions on the blockchain give us the green light to use our blockchain as an instrument to process transactions with stable coins. We’re already set up to do this.
By providing KYC (Know Your Customer) reports and AML protections on all participants within the CERES ecosystem, we can ensure that all bad actors that attempt to game the banking system are eliminated. In addition, our ability to automatically produce SAR (Suspicious Activity Reports) reports for all transactions in real-time will provide the compliance necessary for any banks that choose to work with cannabis companies associated with CERES.
Additionally, CERES can truly become each state’s cannabis operating system. Due to the construction of our blockchain network, CERES can invite state regulators, taxing authorities, banks, broker/dealers, and any participating associates to become node holders on the CERES blockchain.
There is not and cannot be a more transparent system. The fact that every participant has gone through KYC regulation and every dollar has been subjected to the provisions of AML allows for the total trust of the participants. Upon implementation, we are confident that financial governing bodies and regulatory authorities will be our biggest fans.
Banks want to work with cannabis and cannabis-adjacent companies. And local and state governments want these companies to flourish. Why? Because this is a rapidly growing industry capable of producing a lot of income for states. So far, access to banking has been exceptionally limited due to compliance costs and reputational risks, two significant gaps that CERES can fill.
There would be no reputational risk for banks from working directly with cannabis companies, as CERES will do all the background work and due diligence to ensure security and safety. In addition, because we have built our system around compliance, banks can take advantage of the low costs of the CERES network to provide for their compliance.
For cannabis companies, the passing of the SAFE Banking act and the existence of the CERES ecosystem opens up previously unavailable opportunities in the form of access to finance and affordable financial services from banks.
It’s a win-win-win-win: for cannabis companies, banks, financial regulators, and our investors.