Banks can do business with cannabis companies Peter Su, the Senior Vice President of Green Check Verified joins Dan Humiston to explain how his company enables financial institutions to safely offer their services to legal cannabis companies. Peter discusses how the Bank Secrecy Act (BSA) works, which is essentially the last line of defense for banks and financial institutions to keep illicit funds out of the financial system. He simplifies the explanation and notes that proceeds from federally illegal businesses, such as cannabis, are considered money laundering. Despite the risk, the Financial Crimes Enforcement Network (FinCEN) released a set of guidelines in 2014 that provided a clear set of expectations for banks and credit unions that decide to bank with cannabis companies. Peter notes that the guidance has allowed a network of financial institutions to bank with cannabis companies that are comfortable following the guidelines Produced by PodConx MJBulls - https://podconx.com/podcasts/raising-cannabis-capital Dan Humiston - https://podconx.com/guests/dan-humiston Peter Su - https://www.linkedin.com/in/petersu/ Green Check Verified - https://greencheckverified.com/ Recorded on Squadcast - https://squadcast.fm/
Banks can do business with cannabis companies
Peter Su, the Senior Vice President of Green Check Verified joins Dan Humiston to explain how his company enables financial institutions to safely offer their services to legal cannabis companies. Peter discusses how the Bank Secrecy Act (BSA) works, which is essentially the last line of defense for banks and financial institutions to keep illicit funds out of the financial system. He simplifies the explanation and notes that proceeds from federally illegal businesses, such as cannabis, are considered money laundering. Despite the risk, the Financial Crimes Enforcement Network (FinCEN) released a set of guidelines in 2014 that provided a clear set of expectations for banks and credit unions that decide to bank with cannabis companies. Peter notes that the guidance has allowed a network of financial institutions to bank with cannabis companies that are comfortable following the guidelines
MJBulls - https://podconx.com/podcasts/raising-cannabis-capital
Dan Humiston - https://podconx.com/guests/dan-humiston
Peter Su - https://www.linkedin.com/in/petersu/
Green Check Verified - https://greencheckverified.com/
Recorded on Squadcast - https://squadcast.fm/
[00:00:00] Today. Today at MJ Bulls, we are joined by Peter Sue, the Senior Vice President of Green Check. Verified Peter, welcome
Yeah. Dan, thank you so much. Thank you for having me.
Well, I'm appreciate you being on the show, and I had to come clean to our audience. I, I completely blew Peter off a couple weeks ago, so this is my, my bad, I I, I just blanked on our interview and , I completely missed it, but I'm so happy that you're back on because we have a lot to talk about and I know our audience is gonna enjoy listening to, to, to what you're doing, and I'm excited to talk about it.
It seems. What you're doing is impossible. Green Check verified enables financial institutions to safely offer their services to legal cannabis companies. I'm gonna say that again. They safely allow cannabis companies to, to use financial institutions, which I don't know, it just, everything I've ever heard says that does is not possible. For years and years and years, we've heard, unless we get same banking to pass. Cannabis [00:01:00] companies cannot use banks. How are you able to do it?
Well, so in order to understand safe banking, first you have to understand something called bsa Bank Secrecy Act. And keep in mind, I am way oversimplifying here. So for your,
Yeah, please,
for your audience,
Yeah.
for your audience members, that might be like banking experts, don't come at me. I'm, I'm oversimplifying this to, for, for Understandability bank Secrecy Act essentially says that that, You're the person, the bank secret, the, the, the BSA officer for a bank or compliance officer for a bank has a personal and institutional responsibility to keep illicit funds outta the financial system. So you are the last gatekeeper. Someone has committed a crime. There is illicit funds, how they're gonna put it into the, the financial system. Through your institution, you are the last line of defense. Cannabis is [00:02:00] federally illegal. By definition proceeds from that business, it's, it's federally illegal, thus it's money laundering.
Mm-hmm.
why, why do people think that you cannot bank cannabis? Well, on paper, there is that risk. In other words, no lawyer can come to you and say, oh, absolutely. The feds will not do anything to your bank, cuz on paper. That is always possible. A as right, for every business you're, you're a steep state, legal, licensed business somewhere, the feds can come in there and shut you down.
That is fact. also fact for the bank. So how is it possible? Well, the coal memo came out
From the coal memo, everything kind of trickled down from there. Every federal agency essentially filed a suit and said, From the cold memo, we will base our regulations.
So banking regulators, Fon in 2014. Fon is a financial crime enforcement network. In [00:03:00] 2014, they release a set of guidance. So Fon 2014 guidance, and it basically says, Hey, if you're gonna bank cannabis, make sure you do this. So in other words, we as your primary regulator here are expect. So it doesn't say you can.
It doesn't say you should. It says if you're going to do it, you're an institution. You've decided I'm gonna bank cannabis. Well, here's what we're gonna look for when we come and examine your bank, your credit union. Now, Vince, in 2014, guidance is essentially a copy and paste of the cold memo. The issue, of course, when we think about it,
the coal memo was a set of priorities that then Attorney General Cole set for state attorney generals. So, in other words, this is what state and federal prosecutors are, are looking for. Some of those don't really make sense once you translate them into a financial institution. So, for example make sure that you're.
Not selling to minors, 21 and under. Make sure that there's no interstate commerce, [00:04:00] make sure it's not on federal land. Things like that might make more sense from a prosecutorial standpoint, but from a financial institution perspective, if you think about it, how do we know if you're selling to minors, like we don't really like, like we, we'll ask you, we, we'll give you a piece of paper, you a test, that said that the answer to your question is Vincent 2014 guidance. Believe it or not despite all the urban legends about how there's no cannabis banking, there is actually a very clear set of guidance. It's, it's clear that it is guidance. It's not a set of rules, it's not regs. This is guidance from a primary regulator who says, when, if you're gonna bank cannabis, here are our expectations.
I see. I see.
Yeah, and, and so essentially what you've done is you've found a network of financial institutions that are comfortable following those guidelines and therefore are willing
So, so, so, hey, that's the question. So let's get nuanced on that, right. In the beginning so we're [00:05:00] talking early days in Colorado, California. Yeah. Literally the industry was unbanked. No bank, no, no credit union would touch it at all. And again, because of what we just discussed, right?
Eventually more and more. in. All right, let's try it. And, and, and as time progresses, a couple things happen. In fact, Vincent has a statistic they track what they believe to be the number of institutions banking, cannabis Now I wanna, I wanna be clear, most insiders believe that Vincent's numbers are way off.
They say that today there is 700 ish financial institutions bank in cannabis. We think there's no way there's anywhere near that number. We think it's closer to like 200, maybe two 50. But if we, if we trace it back in 2016, Vincent believed there was 300 ish financial institutions. So, and I promise I'm getting around , to your question.
So what happens? Well, two things really. One, just passage of time, right? Like, as you see other institutions are banking cannabis and nothing's [00:06:00] happening to them.
you feel
comfortable as more states come online, as more businesses come online as now it's, some businesses are in fact doing well, it's a, it's a multi-billion dollar industry now.
What are institutions thinking? Hey, maybe we can make some money here. Now it's important to point out it's true. No institution has gotten into trouble for banking cannabis. Now, one credit union did get their wrist slapped specifically cited in their consent order, your cannabis banking program.
Now, even in that scenario, they weren't told to stop doing cannabis. What they were told was, you're no good at it. Essentially, it goes back to the bsa, the Bank Secrecy Act. In other words, it wasn't like, no, you can't do cannabis. It was like, your program isn't strong enough. Now, there were some other banks that were cited in their consent order, things like that.
Again, for, for BSA failings. In those scenarios, they were not specifically cited for cannabis. However, anecdotally, we know that these are banks that have cannabis programs. They got cited, thus [00:07:00] we assume it was due to cannabis. All of this to your, to your question, which is what do we. In order to thought to, to satisfy Fon expectations.
Look, the guidance, it's very laborious. . I should mention at this point that I, I actually come from the banking world. I, I spent about 23 years in, in banking. I've actually personally ran two separate cannabis banking programs. And so I have experience on both sides of the fence.
, it's a, a huge amount of work. We, we used to have this statistic, we would say five to eight. That is to say for every five to eight cannabis businesses you bank, you would've to add another.
That's how much, that's how much work is involved.
This is why in the early days you used to hear like $10,000 a month for like, just, just for a checking
account.
Mm-hmm.
I mean, look, maybe there was some profiteering involved, but this is because you had to hire so many people just to bank.
Like, like if, imagine if you had a hundred [00:08:00] cannabis businesses, that would be like the biggest department of the whole bank. Conversely, we have clients using software that are banking 50, 60, 80 accounts per fte. E full-time employee. FTE E hours are how compliance resources measured by our regulators.
So what do we do? It? It's not that we solve the puzzle, per se. The puzzle in theory, was solved by FIS in 2014 guidance. What we did was we came in and said, this process, this manual process, is crazy, like it makes no sense. We're essentially comparing three pieces of data, right? So you've got money in the bank, sales receipts, they reported data.
Now imagine back in my day, that's like literally me going through like Excel spreadsheets of like pivot tables. Which is obviously something that can be automated with software. Uh uh, so whether it's question of accuracy scalability resource and look accuracy, right? Even if you're willing [00:09:00] to throw bodies at it, it doesn't mean you're doing it well.
That's, I mean, it's a, it is way more complex than, than anybody could possibly imagine, but you understand based on your ex explanation as to how we got here.
, let's just fast forward because we don't have a ton of time left. But there's really, um, a couple things that I wanted to just touch on before, in, in the process.
If, if, if I owned a cannabis company . Maybe I don't have a, a, a bank to, to work with. That's when I reach out to, , your company, and you helped me through that process.
Yes, let, let in a so what do we do about all this history, right? So in a practical sense today so good news, bad news, right? You're entrepreneurs that want, that have a cannabis business that are looking for banking, they should be able to find an account.
However,
Mm-hmm.
there's only gonna be a handful in any given state.
So yeah, it'll be hard to. It will be a, a, a tougher process if you, you've got again, especially [00:10:00] your experienced entrepreneurs are used to walking into a bank with three, four pieces of paper. And that account could be opened that week, that day even
that's not gonna happen here.
If, if there's anybody out there looking, looking for accounts, having trouble, please absolutely feel free to reach out. We work with just 120 seventh is my current roster. So banks and, and or credit union all over the country that are banking cannabis. What I would suggest as an advice is well one, be patient because as I mentioned, it's not gonna be a day, it's not gonna be a week.
Average industry average is around a month, believe it or not. Documents required is, is a lot. Now, the good news with respect to documents is what the bank is looking for. What the fence in 2014 guidance says is they're really just making sure that you're state legal. So what they're looking for, honestly, is very close to , what you're probably prepared to give the state anyway.
So, literally just CC them on your application. Right. But actually I would take it a step further now. I think we're in a different phase of banking like it used to be like, oh, I need an account. I just, anybody that could gimme an account, I'll take it. Now,
[00:11:00] Yeah.
now I would say you're looking for improvements in capability, capacity, and costs.
So you're shopping, in other
words,
Yeah, I especially cost, like
I don't wanna pay 10, $10,000 a month if I don't have to.
That's right. That's right. So, so my advice would actually be to nibble around the edges. I shop literally. Right? Like, ask your bank, your credit union. Have you, have you done cannabis before? Because what you don't want is a, is a brand new program, especially if they're doing it on their own. It's different if they're not to be self-serving, but if they're working with experience operators like us, we're, we're.
Bringing them up the right way, so to speak. But, and, and again, Dan, you've been around a while, in the early days there used to be a lot of banks that would jump in and jump out. So that's where you used to hear horror stories of people like having op gone through like 10 banks, right?
Yes, yes, yes.
so I would, I would definitely ask, Hey, what's your experience? Do you, have you done cannabis before? What are your costs? , who are your partner? And this is [00:12:00] important for the merchant as well. One of the things that has dramatically changed the picture is, , all the support players like us, like the, the POS providers, as better data became available in cannabis, it made the banking easier.
And frankly, that that's where we make a living. We, we ingest that data and we, and that's how we're able to spit out good reports that make the banks feel.
That makes a lot of sense. It's part of the maturation process of the industry. And, and I think that what you're doing is a, is sort of consolidating all that data and information for not just the banks, but also , for the cannabis companies that,
are either having trouble or they maybe want to try to find a better solution for what they're already doing. I think that's that's, uh, a really important takeaway from this you know, there are, there are other options and you guys have done a great of, of helping to expand the options and also helping to ex to, to [00:13:00] give cannabis companies a place where they can explore the other options.
, I think that's really important. we could go on. There's so much about it.
Uh, Well, I actually, I actually was gonna say that what we might wanna do is wanna have a, um, a round two and, um, we can maybe get in uh, you know, more nuanced aspects of what we're doing.
, it's such a important part of, the industry and, and there is some , urban legends, but I think they're based in reality. Some of
'em are based in reality,
yeah.
yeah. , and I'm gonna have the links to, um, green Check verified , in our show notes.
I saw on your website that you have consulting services and that's one of the, one of the services that you bring , to anybody that's interested.
Is that correct?
Yeah, Dan, we, we, we haven't talked about financing, payment,
everything
like that, so, absolutely. Yeah. But yes, consulting services we so we, help a bank, help lenders any, so basically what we're doing is we're starting to think, well, who else might want this service? Right? So, pull that aperture back.
We've made a way to [00:14:00] make cannabis banking more digestible for banks, for financial, How can we bring that same core competency to anybody else? So for example, insurance companies, lenders, payment companies, so that, that, that's sort of the next step in our evolution.
well, like I said, , 10 minutes is certainly not long enough to, to tackle this topic, but it, but it definitely warrants Um, Another time on the show. Uh, So let's let, we'll get that on the books and people stay tuned that. But, um, this gives you enough to wet your whistle so at least you know what Green Check Verified is all about.
And like I said, go to their website. And Peter, I'm glad you could do this today. And I, I,
wish we wish we had more time. . And, , thanks again for doing it.
All right, Dan, thank you so much.