The legalization of cannabis sales in Arizona, both medical and recreational, has been a boon to local and regional Arizona banks and credit unions. Unlike many nationally chartered banks, the local and regional banks have taken some risk in helping to bankroll Arizona’s growing cannabis industry, without which it would run almost entirely on a cash basis.
However, most Arizona private banks and credit unions are not offering lending or line of credit services to cannabis industry players, and those that do require significant red tape to offer any type of credit. As such, operators cannot borrow against inventory or set up short-term lines of credit to manage cash flow. In addition, the major credit card processors and online payment processors refuse to allow cannabis transactions until cannabis sales are made legal on the federal level. This makes it difficult for cannabis businesses to grow or expand operations.
There is meaningful reform moving through the federal government in the form of the SAFE Banking Act, which has passed the U.S. House of Representatives and is stalled in the U.S. Senate. The SAFE Banking Act will prohibit federal regulators from punishing financial institutions for their decision to transact business with companies legally operating in the cannabis space at the state level. If the industry is to truly blossom, it desperately needs a lift from Congress in the form of some sort of law, like the SAFE Banking Act, that will recognize the reality that cannabis is a big and legitimate industry. Until then, the local and regional cannabis-related banks (or CRBs as they are known) will continue to offer a limited menu of much-needed services at extraordinary prices.
Right now, Arizona is one of the more progressive states when it comes to cannabis banking. It is a restrictive and expensive environment. Once a bank notifies regulators that it is working with cannabis-related businesses, the bank is designated as a CRB. The CRB banks are subject to more oversight by the FDIC. CRB banks are required to have additional compliance requirements and retain a designated risk manager. To meet the FDIC oversight requirements, CRBs require cannabis-related businesses to provide quarterly financial statements, provide monthly inventory reports, and are subject to periodic onsite inspections from the CRB risk manager.
Read more at bizjournals.com