AML Compliance for Legal Cannabis

i-aml cannabis

Not long ago, banks avoided dealing with cannabis-related enterprises (MRBs). However, in the United States, the broad legalization of the cannabis business for medical and recreational uses is moving this contentious plant closer to the mainstream.

Cannabis and cannabis-related enterprises provide banks with anti-money laundering (AML) compliance issues. At this stage, AML Transaction Monitoring can be used. In this way, AML compliance for cannabis can be achieved.

Legal Cannabis and AML Compliance Challenges

Because cannabis remains illegal at the federal level, firms cannot open bank accounts or take credit card or debit card payments from many major institutions across the country. If they don’t have access to sophisticated digital payment systems, cannabis businesses must rely on cash. This AML compliance for cannabis makes legal dispensaries attractive to criminals, aware of the enormous amounts of money on hand.

Cannabis establishments require authorized financial services to avoid hazardous instances like these. These firms need the same banking tools to pay their vendors and workers, submit tax deductions, and access loans to grow their operations, allowing electronic payments and minimizing their reliance on cash. Without it, their development plans and capacity to function securely daily may be dashed.



AML Compliance Concerns for Cannabis Industry

Despite the sector’s rapid expansion, banks face two significant obstacles in providing financial services to the regulated AML compliance for cannabis-related businesses.

  • Cannabis remains banned in the United States: This is, without a doubt, the most significant challenge that financial institutions (FIs) confront when it comes to serving the cannabis sector and allied enterprises. Cannabis is still classified as a Schedule 1 drug. This puts banks in a dangerous position when providing financial services to cannabis firms.
  • Banks must follow AML regulations: The main question for banks is whether working with a cannabis store violates the law. This is highly dependent on the bank’s operating jurisdictions. Banks having operations in states like Colorado, where recreational cannabis use is permitted, can conduct business with cannabis firms in that state, for example. Banks that operate in numerous states, on the other hand, must adhere to federal standards since what is acceptable in one jurisdiction may be prohibited in another.

Do due diligence for hostile media.

The cannabis business is still recovering from state-level decriminalization. As a result, many persons employed in the now-legalized profession are likely to have criminal histories. Banks contemplating doing business with a licensed dispensary or MRB should conduct a comprehensive background check on the company’s employees to rule out potential negative media issues. If the bank finds that the cannabis store employs people with criminal backgrounds, it’s critical to establish when the crimes occurred.

Do due diligence on cannabis businesses.

Banks must carefully examine the beneficial ownership of a company. To operate in their town, cannabis shops must first get a license. For possible red flags, banks should evaluate the company’s license paperwork and registration procedures. These documents may also reveal the beneficial proprietors of the company. 

Monitor all cannabis business transactions

Even as cannabis becomes more legal, there are still chances for criminals to launder money via respectable enterprises. Banks should examine the cannabis company’s actions to ensure they fit the description. For example, a Colorado-based dispensary sent to other countries is a major red flag. So does a cannabis firm that generates more revenue than a similar-sized business. Banks should monitor these transactions closely to confirm that these legitimate cannabis firms are acting as expected.

Get ready to defend your bank’s decisions.

Even though cannabis is becoming more legal, it is still heavily restricted at the federal level. Banks that do business with legal cannabis shops should be prepared to justify their actions and CDD results to federal authorities. It is necessary to make sure you know whether certain transactions are under the jurisdiction of state or federal regulators. If federal cannabis regulations are ever loosened, having a great connection with federal authorities might pay you in the future.

Enable the proper AML monitoring controls

Approximately 99 percent of reputable cannabis shops and MRBs attempt to conduct lawful companies. However, there will always be 1% of the population who will try to circumvent the law. Banks must guarantee that the appropriate degree of friction is created to catch this small group. In addition, banks can monitor how these firms behave and respond promptly to questionable actions if they have the proper procedures.

AML Compliance for Cannabis-Related Businesses

When it comes to BSA/AML compliance for cannabis, financial institutions providing goods and services to direct and indirect AML compliance for cannabis-related businesses, investors wishing to fund MRBs, and those providing services to MRBs all confront significant obstacles and unknown dangers. The following are some of the questions you’ll need to answer:

  • Does your firm’s existing risk plan include banking MRBs? 
  • What risks are associated with the different goods and services you could provide MRBs?
  • What should regulatory recommendations be taken into account? 
  • What are the distinctions between therapeutic cannabis, also known as medical cannabis, and adult-use cannabis, also known as recreational cannabis? 
  • Can you use the help of third parties’ assistance with onboarding and continuing due diligence? 
  • Who are these unidentified third parties? 
  • What kind of monitoring and surveillance is required, and at what levels? 

You can contact Sanction Scanner for experienced, unbiased guidance and experience in addressing these questions if you’re contemplating investing in, providing financial services to, or otherwise getting involved in the expanding AML compliance for cannabis-related business.


June 27, 2022 Published by The Sanction Scanner. (Link to Article)

Recent Posts