Look Before You Leap: Determining Your Bank's Lending Strategy

12-10-2024 1:00 PM EST

Does cannabis banking represent an opportunity for your bank or a risk not worth taking?  To answer this, bankers must weigh the regulatory compliance burden and industry-specific risks against the goals of attracting and retaining low-cost deposits, increasing fee income, and developing profitable new borrowers.  The latter represents the potential opportunity of lending to cannabis businesses, but “looking before you leap” requires you to treat a potential cannabis borrower the same way you would any other business you are contemplating lending to.  First, you must familiarize yourself with the nature of the cannabis industry, then develop your business strategy, and finally win over the Board with a compelling business case. 

Stacy Litke, the presenter for this webinar, is a former community banker who now works educating her former colleagues about the pros and cons of cannabis banking in general, and cannabis lending specifically.  She advises financial institutions on how to find a profitable lending niche in the highly-regulated and fledgling cannabis industry which aligns with the institution’s strategic goals and adheres to all regulatory and legal requirements.  

What You’ll Learn:

During this informative webinar, Ms. Litke will discuss:

• The strategic alignment of your bank’s lending program with the cannabis industry
• The operation and structure of cannabis industry businesses
• Characteristics of the cannabis industry which need to be considered before you lend to these businesses.
• How to go about evaluating your institution’s risk exposure
• Finding your strategic cannabis lending niche
• Lending product options and types of loans prevalent and emerging in the industry
• Potential related business opportunities cannabis lending offers your bank
• Getting your Board to agree to  a cannabis line of business
• Current legal and regulatory and reputational considerations

Outline

A. Overview and Introduction

1. Potential alignment between your institution’s goals and cannabis businesses

B. Structure and Operation of the Cannabis Industry

2. Organization—cultivation, manufacturing and processing, distribution, transportation, and retail

3. Leases—typical term, risk premiums, etc.

4. Current industry sources of capital

5. Operations of a cash business, etc.

C. Developing Your Lending and General Business Strategy

1. Strategic alignment

2. Gauging cannabis lending business risks against your institution’s risk profile

3. Clearly identifying your lending goals

4. Ancillary benefits—a stable source of deposits, fee income, etc.

5. Understanding the market from a lending perspective

a. Possible lending opportunities both in and outside your immediate market area

b. Acceptable collateral

c. Leveraging the information you have for business development

d. Expanding “Character” and “Collateral” as part of the 5C’s of lending

6. Enhanced monitoring

a. Mitigating risk with enhanced due diligence

b. The importance of data in ongoing monitoring

7. Legal and Regulatory Considerations

a. Current state and federal requirements

b. FinCEN guidance

c. The expectations of your examiners

d. Federal SAFE and SAFER Acts, putting into writing what’s already happening in practice

D. Winning Board Approval

1. Briefing the Board

2. What background materials should be presented to the Board

3. Review of the business opportunity

4. Discussion of the reputation risk, real or perceived

5. Regulatory compliance requirements

6. Experience with other financial institutions in your market area