In the wake of Ohio becoming the 24th state to legalize adult-use cannabis through the passage of Issue 2, My Cannabis engages in a compelling Q&A session to explore the state's distinctive approach to compliance and banking. Shedding light on this groundbreaking development is an industry expert, the Co-founder and VP of Knowledge at Green Check, Paul Dunford who brings valuable insights to the table.
As we delve into Ohio's pioneering measures, discover how the incorporation of SAFE Banking Act-like provisions and the prospect of a state-backed closed-loop payment processing system are reshaping the dynamics between financial institutions and licensed cannabis businesses.
My Cannabis: Given Ohio's incorporation of its version of the SAFE Banking Act into cannabis statutes, how do you see this impacting the relationship between financial institutions and licensed cannabis businesses in the state? Are there specific advantages or challenges that stand out?
Paul: In some ways the inclusion of SAFE-like protections in Ohio’s statutes are relatively symbolic today. One could argue that it would be most impactful on state-chartered financial institutions because federal regulatory agencies aren’t affected by state-level statutes like this. Even a state-chartered financial institution has some sort of federal oversight, like participation in FDIC (banks) or NCUA (credit unions) insurance programs to protect customer funds. However, this signals that the Ohio banking community understands how important it is to offer financial services to the cannabis industry.
My Cannabis: The ability for financial institutions to directly request information from state regulators about Cannabis-Related Business (CRB) customers is an interesting aspect of Ohio's regulations. How do you envision this direct access influencing due diligence processes and risk management for banks serving the cannabis industry in Ohio?
Paul: Every financial institution is responsible for making sure that every dollar that enters their doors is the result of a state legal sale. Financial institutions today often do this by requesting invoices and reports from point of sale systems. However, it would be ideal if a financial institution could get this information directly from the state so that they can verify that what the cannabis business tells them is the same as what they tell the state. Additionally, it means that financial institutions in Ohio have the ability to get information about enforcement actions taken against a CRB or its owners and to verify the status of their license in real time. Very few states offer this kind of “one stop shop” for cannabis compliance resources. It again underlines that Ohio understands cannabis banking requirements and has built into their statutes an admirable amount of resources for financial institutions that work with the industry.
My Cannabis: The provision for a potential state-backed closed-loop payment processing system in Ohio seems innovative. How might this system address existing challenges in financial transactions for the cannabis sector, and what compliance considerations would be crucial for its successful implementation?
Paul: Cash will remain king in cannabis as long as sustainable, compliant electronic payment methods are not universally available to cannabis operators and customers/patients. While there are some options out there, we know that the biggest players – the credit card companies – continue to insist that their networks cannot be used for the purchase of marijuana.
Ideally a closed loop system would offer everyone access to a solid and reliable common system, normalizing electronic payments in the state and minimizing the need for handling, storing, counting, and transporting cash. Nevada has something similar on the books but, like in Ohio, it hasn’t been implemented because the potential benefits are somewhat outweighed by the skepticism that many financial institutions have for cryptocurrencies and other token-based payment systems. While that might not seem like an issue if the system was just used within the industry, the reality is that at the end of the day any funds in a token-based system have to exit out through a financial institution and none have yet stepped up in any state that’s considered this to be that off-ramp. They won’t until they can be sure that they have full transparency into the transactions conducted on the platform, which is something that token-based systems often, by their very nature, obscure.
I do think that Ohio has a pretty good chance to push that kind of transparency considering they already have provisions to share CRB-related information with associated financial institutions. Probably a better chance than most if they can find a bank or credit union willing to sponsor the system.
My Cannabis: As the cannabis industry evolves, compliance requirements also change. How does Green Check foresee staying ahead of these dynamics, especially in states like Ohio with unique banking and compliance frameworks?
Paul: The only constant in cannabis is change, so we as an organization have committed significant resources to stay on top of what’s happening in every state, territory, and when possible tribal nations that have any kind of cannabis program. Whether it’s full legalization, medical-only programs, or even states that haven’t legalized marijuana but have hemp or CBD programs we’ve read and reread all of the program documents. We put in the time to constantly check and recheck statutes and regulations and have the expertise to locate and pull out the information we need that specifically affects banking compliance. That’s why we exist and that’s why financial institutions trust us to support their programs. It’s a heavy lift but that’s why we’re here! There are no shortcuts in compliance.
My Cannabis: With the evolving landscape of cannabis legalization, financial institutions face both challenges and opportunities. What do you see as the primary challenges and opportunities for banks and credit unions operating in states like Ohio, and how can they navigate these effectively?
Paul: In a state like Ohio the real opportunity comes with adult-use legalization. Ohio’s medical program wasn’t necessarily small in terms of scale but it’s been around long enough without expanding that existing businesses are already banked so there’s not a lot of room for new players interested in engaging the industry. With adult-use there will be opportunities for existing financial institutions to grow with their medical companies that seek out additional adult-use licenses, and perhaps even more significantly new banks and credit unions will be able to step into a wide open field for the first time in many, many years. That also means that there will be competition at a scale that hasn’t existed before so market pressures may force financial institutions to expand their service offerings or drive down the fees that they are able to charge CRBs for cannabis accounts.
This is great for CRB operators but it might affect financial institutions that aren’t ready or able to adapt quickly to the changing landscape. You can bet that banks and credit unions that aren’t yet in cannabis are doing their homework, collecting information about who's banking, what they charge, and what they offer so they are going to do their best to lure in new cannabis businesses that don’t yet have loyalty to any of the existing players.
To be fair, that’s not just for Ohio – when programs expand, either by legalizing medical, adding adult-use, or by opening up new licenses, market pressures have made depository accounts more of a commodity. What we might call “Cannabis Banking 2.0” is characterized by moving past an expensive place to stash cash into more “mainstream” business accounts that include online banking, low (or in some cases no) fees, and lending.
It was a great honor to have this conversation with Paul Dunford. You can learn more about Green Check Verified.