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Member Blog: Trials and Tribulations – Compliance for Banking

by Nicole Perry, DartBank

There are not a lot of financial institutions out there that support cannabis, so finding the right one is important. What is also important is to understand the ‘why’ behind what they are asking. Opening a cannabis bank account is not as easy as opening a traditional business bank account. With cannabis being federally illegal, banks, and credit unions must adhere to the rules and regulations set forth by our regulators, also tying in the respective state that the cannabis business is operating in.  

An initial phone call is often set up for the financial institution to learn more about the cannabis business, its owners, and signers. Knowing when the business will be operational and what their big picture looks like is fundamentally important. Questions could be asked about ownership, location, growth, licenses, and compliance. Some products and services are not fully available to the cannabis industry, because other players have not fully opted in (i.e., merchant processing and debit/credit cards). This makes the financial institution banking cannabis able to create a product suite that they feel comfortable with from a risk and compliance standpoint. Pricing out cannabis bank accounts is also something that differs from the traditional businesses being banked. 

Again, not every financial institution will support cannabis, and that is because it is expensive. It is expensive because those that support the industry have had to seek guidance from consultants, their respective regulator, their state, their local cannabis groups and associations and their board of directors. The initial onboarding of a cannabis customer, after pricing is accepted, takes longer as well. Background and credit checks, as well as risk reviews need to be completed at most financial institutions, along with an initial onsite audit visit. 

It is widely understood that cannabis businesses must go through an inspection with their operating state before they are licensed, however, financial institutions are still required to make sure they know what they are working with. Most financial institutions work closely with their compliance/BSA teams to develop risk profiles so that if questions are asked of them during an audit, they can answer to the best of their knowledge the transactions that are occurring and then prove that we understand what the cannabis businesses are using their accounts for. Many financial institutions have implemented the use of compliance software that allows their cannabis departments to review transactions, seed-to-sale monitoring, monitor licensing, insurance, onsite visits, and financial changes. METRC and Bio Track are the two main seed-to-sale tracking systems used throughout the United States. Most states have adopted using one or the other and few have implemented their own manual tracking. 

The seed-to-sale system your financial institution chooses to work with can integrate with your respective state’s seed-to-sale tracking system for financial institutions to monitor account transactions and seed-to-sale flow. It is common to have your financial institution reach out to you once you have been onboarded to integrate your API key (QR code that houses your cannabis licenses) into their respective compliance software to initialize the tracking component. Directly after this, the designated person at the cannabis business or CPA (to be determined by the cannabis business) will be asked to upload your financials into the compliance software monthly for tracking purposes. These systems correlate with most POS systems as well as QuickBooks for a seamless flow. Financial Institutions are often asked by cannabis businesses if this is something they can do in-house or if they can utilize an outside CPA firm to help. The answer is yes to both. It takes minimal time each month to upload your financials so doing it yourself is certainly feasible, however, there are many CPA firms out there who will do it for you, along with making sure your numbers make sense and your taxes are accounted for. Not to mention, the annual CPA attestation as well. 

Financial institutions are not asking you to do this to make your life difficult. It is simply because this is a new industry, one that is federally illegal at that, and verifying information to better understand how the industry works only helps to normalize it. It is also common for your financial institution to ask for invoices to accompany transactions such as wires, ACH, bill pay, checks, cash deposits, etc. We do this because auditors also ask us if we can, in fact, verify we know what this transaction was for and to whom the funds went. It also helps with fraud surveillance. Most financial institutions have experts in fraud or compliance who can help deter this from happening to you and your business. 

We have come a long way since inception and have learned a lot over the years. What is important to know is we are all a team. The cannabis business and the financial institution are working together to understand how they both complement each other. Together we are building the cannabis industry, so that one day, when it is stabilized and normalized, we can take that with us for the next big thing. Every industry out there was new at one point and had to go through the same trials and tribulations, and while most of us cannot remember or have never been a part of the ‘build out,’ it did happen at some point. When your financial institution asks you for something related to transactions or business, please understand that it is for the better of the industry.

We can work together to normalize and strengthen this industry. All the steps we are taking are learning opportunities. I believe everyone can say at one point they did not know how to do something, but through training, education, and a road map, we were able to develop a routine so that as we grew at understanding something we had not understood before, it became normal. 

Nicole Perry has been with Dart Bank since 2016 as the Office Manager and most recently VP/Senior Treasury Management Officer. She brings with her 20 years of financial services experience. Prior to joining Dart Bank, she worked for various financial institutions holding many different roles, specializing in business banking.

Nicole is an alumna of the Lansing Chamber of Commerce’s Lansing Leadership 2018 class and is part of the Perry School of Banking class of 2020. She received her Bachelor of Arts in Business Management with an emphasis in Human Resources from Davenport University and attended Central Michigan University for her Master of Science degree. In her spare time, Nicole enjoys attending Michigan State University football and basketball games and spending time with her family and friends at the lake.

Committee Blog: Mississippi to Implement Medical Cannabis Law

By Joe Smith, Thompson Hine LLP
member of NCIA’s State Regulations Committee, New States Subcommittee

On February 2, 2022, Mississippi Governor Tate Reeves signed the Mississippi Medical Cannabis Act (SB 2095) into law, making Mississippi the 37th state to authorize the medical use of cannabis. Passage came after the voter-approved ballot measure allowing a medical cannabis program was struck down by the Mississippi State Court. The Mississippi Department of Revenue (MDOR) has 150 days from enactment to begin the process of licensing dispensaries and is working with the Mississippi Department of Health (MDOH) to design the application process. The Alcoholic Beverage Control Enforcement Division of MDOR will be the division accepting the license application and will begin accepting applications no later than July 1, 2022. Thirty days after receiving a completed application, it will have to issue dispensary licenses to qualifying applicants.

Patient Qualification and Limitations

To qualify for the program, patients must have at least one qualifying medical condition and a certification issued by a healthcare practitioner with whom they have a bona fide relationship. A “bona fide practitioner-patient relationship” means the practitioner has a treatment relationship with the patient during which the practitioner has completed an in-person assessment of the patient’s medical history and current mental health and medical condition; has consulted in person with the patient about the patient’s debilitating medical condition; and the practitioner is available to or offers follow-up care and treatment to the patient. The practitioner must be a Mississippi-licensed physician, nurse practitioner, physician assistant, or optometrist. They must believe the patient “would likely have medical or palliative benefit” from medical cannabis to treat their qualifying condition. They also must have completed 8 hours of continuing medical education on medical cannabis and complete five hours every year thereafter. 

The qualifying conditions are cancer, Parkinson’s, Huntington’s, muscular dystrophy, glaucoma, spastic quadriplegia, HIV, AIDS, hepatitis, amyotrophic lateral sclerosis (ALS), Crohn’s, ulcerative colitis, sickle cell anemia, Alzheimer’s, agitation of dementia, PTSD, autism, pain refractory to opioid management, diabetic/peripheral neuropathy, spinal cord disease, or severe injury. Patients can also qualify with a chronic medical condition (or its treatment) that produces either cachexia or wasting, severe nausea, seizures, severe and persistent muscle spasms, or chronic pain, narrowly defined as “a pain state in which the cause of the pain cannot be removed or otherwise treated, and which in the generally accepted course of medical practice, no relief or cure of the cause of the pain is possible, or none has been found after reasonable efforts by a practitioner.” There also will be a petition process for patients to seek coverage for other unspecified conditions.  

The program limits possession and purchases to “Medical Cannabis Equivalency Units” (MCEUs) of 3.5 grams of flower, up to 100 mg of THC in infused products, or 1 gram of concentrate. Patients’ purchases are limited to 6 MCEUs in a week and 24 MCEUs in a month. They may not possess more than 28 MCEUs at one time. Flower is limited to 30% THC, with tinctures, oils, and concentrates not allowed to exceed 60% THC. 

Regulation and Business Operations

The MDOH will be the primary regulator and coordinate with the MDOR for licensing and operations. MDOH will create the applicable regulations relating to seed-to-sale tracking, recordkeeping requirements, safe processing stands, transportation, health and safety, and security. It also will be responsible for monitoring and restricting advertising, signage, and displays. All products will contain a “notice of harm” regarding the use of medical cannabis products.  

Licensing will be required for dispensaries, cultivation facilities, processing facilities, transportation entities, disposal entities, testing facilities, and research facilities. Cultivators will be tiered based on size, and the law does not include a numerical cap on business licenses. No individual or business may have more than 10% ownership interest in more than one cultivation license, one processing license, and up to four dispensaries. Application fees for cultivators will range from $1,500 to $60,000 depending on the size/tier of the particular cultivator, with annual fees similarly ranging from $2,000 to $100,000. Cannabis will be taxed at wholesale at 5% of the price, in addition to standard sales taxes.  

Initially, dispensaries will not be able to provide delivery or curbside pickup for patients. Still, the law does provide that MDOH and MDOR are to implement rules that include “Protocol development for the safe delivery of medical cannabis from dispensaries to cardholders.” Dispensary staff will be required to complete an initial 8 hours of education on medical cannabis and 5 additional hours of continuing education every year. They also must be over 21 and obtain a work permit for $25. They also generally have been previously convicted of a violation crime or been convicted of a felony violation of a state or federal controlled substance law within five years. A disqualifying felony offense does not include a conviction for conduct that would not have been a felony but for the conduct occurring before the effective date of the Mississippi Medical Cannabis Act. 

Medical cannabis businesses are not allowed to be located within 1,000 feet of the boundary of a school, church, or childcare facility, and dispensaries must be at least 1,500 feet from another dispensary. While localities can regulate the time, place, and manner of medical cannabis businesses, they can not ban them or “make their operation impracticable” unless they opt-out of the medical marijuana program by a vote of the localities governing body within 90 days of the law’s passage. If a locality opts out, 20% or 1,500 voters (whichever is fewer) can petition to put the question on the ballot, and an election must be held within 60 days. 

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