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The growing demand for cannabis banking presents a large opportunity, but not every institution has a risk profile or compliance infrastructure that allows them to bank these Marijuana Related Businesses (MRBs).

However, that doesn’t mean you have to pass on banking MRBs altogether. For many financial institutions, serving the ancillary market is a way to engage this growing industry while limiting risk.

Sound interesting? Let’s unpack this a little further with some FAQs and real life scenarios.

Who is the ancillary market?

Ancillary businesses don’t touch the cannabis plant itself, but they provide services to plant-touching MRBs (dispensaries, cultivators, manufacturers, labs etc) and derive most of their revenue from them. Ancillaries include manufacturers of cannabis accessories, accountants, law firms, pro-cannabis media, cannabis-friendly tech, sector consultants, and similar supporting products and services.

Do ancillary MRB businesses still pose a money laundering risk? 

Absolutely. MRB ancillary companies still pose a risk for money laundering and so they should be treated with the same safeguards one would implement on a high-risk account, such as having clarity around all sources of funds and ensuring they are only doing business with licensed entities. This risk must be fully appreciated no matter how detached from the industry’s centre an ancillary may seem as they are engaging with clients who’s source of funds might come into question.

Consider for example a farming equipment supplier that sells its equipment to cannabis cultivators. While the supplier doesn’t require a cannabis license of any kind, its customers do. Should the cultivator lose its license or be improperly licensed, that’s a situation that could have negative repercussions not only for the equipment supplier but also for their financial institution who has accepted funds from an unlicensed cannabis cultivator.

Are some ancillaries higher risk than others?

This very much depends on your risk profile. You may feel an ancillary is a safe bet while others would view that ancillary as a potential ground zero for compliance disaster.

For example, a company creating software to help MRBs function day-to-day is unlikely to ring many alarm bells for banks or credit unions. However, those ancillaries who perform functions such as Cash in Transit or manage trust accounts may be viewed as too close for comfort. 

Banking the ancillary market may be the lower-risk cannabis banking opportunity you’ve been looking for, but it’s not without risk. This is why it is essential for banks and credit unions to establish a well-thought-out risk framework and risk policy,. The policies created should include performing thorough due diligence on their customers, knowing who they service and the legitimacy of how those parties source their funds, how many sources do they have and can they be easily verified? 

Not all ancillary services carry the same risk, an example of a lower risk ancillary service are investors in cannabis related businesses where the transactions are limited to their investment and returns.  The burden of due diligence here is less than if you were banking a plant-touching MRB.

These questions begin to form the risk framework financial institutions should apply to protect themselves when dealing with ancillaries. Deciding whether to bank cannabis or their ancillaries ultimately comes down to risk appetite. Here is a list of some, but not all, ancillary services:

Lower Risk:          

Investors, Attorneys and, Accountants.

Higher Risk

Cannabis pro advertising and public relations, Cannabis licensing consulting, Cannabis training and education, Cannabis industry associations, Software providers, Payment processors, Security systems, Equipment manufacturer and supplier, Greenhouse manufacturers, Soil and nutrient suppliers, Packaging, Cleaning services, Cash in transit companies, Logistics solutions, Utility companies, Lighting, and Landlords