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Anti-Money Laundering in Cannabis: A Conversation with Peter Su, Mark Wolfrey, and Steve Schain

anti-money laundering in the cannabis industry

We recently sat down with Peter Su, Mark Wolfrey, and Steve Schain to discuss anti-money laundering, cannabis banking, and other financial topics related to cannabis.

Read the transcript below or watch the video on YouTube

Qredible: Welcome to the Qredible live broadcast. Today, we have a special panel discussion featuring experts from the Northeast region. Let’s jump right in and have Peter, Mark, and Brian introduce themselves.

Peter: Hi everyone, I’m Peter Su, Director of Specialty Banking for Hanover Bank, with over 20 years of experience in banking, including three cannabis banking programs. Excited to be here!

Mark: I’m Mark Wolfrey, specializing in banking compliance and internal audit for 25 years. I work with institutions in the cannabis industry, ensuring compliance and risk management.

Brian: Hey there, I’m Brian, Founder and CEO of Qredible, a regtech platform for high-risk businesses like cannabis. Happy to join this insightful discussion.

Qredible: Thanks, everyone. Now, Mark, could you tell us more about ACAMS and the upcoming event in Philly?

Mark: Certainly. ACAMS is the Association of Certified Anti-Money Laundering Specialists, providing certifications and education in AML compliance. Our event in Philly focuses on AML in the cannabis industry, offering valuable insights and training.

The SAFER Banking Act and Rescheduling

Qredible: Brian, how do you see the intersection of the SAFER Banking Act and cannabis legalization?

Brian: SAFER Banking presents opportunities for financial institutions to navigate the complexities of cannabis banking. However, it’s not a one-size-fits-all solution. We need to address profitability and compliance challenges even with potential changes in federal law.

Qredible: Peter, your thoughts on the impact of rescheduling cannabis on banking?

Peter: Rescheduling may ease some restrictions, but it won’t eliminate compliance challenges. Banks still face federal regulations and risks associated with serving cannabis businesses.

Qredible: Mark, could you elaborate on the challenges banks encounter when providing services to cannabis businesses?

Mark: Absolutely. Banks must navigate stringent regulations, security concerns, and the volatile nature of the cannabis industry. It requires careful risk management and expertise to ensure compliance.

Qredible: Brian, how do you see the role of financial institutions in supporting the cannabis industry’s growth?

Brian: Financial institutions can be catalysts for growth by providing tailored services and guidance to cannabis businesses. It’s about building trust, managing risks, and fostering innovation in a rapidly evolving industry. 

Many marijuana-related businesses avoid disclosing their pursuit of a marijuana license to banks, fearing it might jeopardize their access to banking services. This stems from a history of deception, often originating in the illicit cannabis market. Cannabis entrepreneurs, accustomed to operating in the shadows, may lack attention to detail, posing challenges for success in the legal industry.

Mark, could you elaborate on the challenges faced by cannabis startups and established companies alike?

Mark: Absolutely. Building a sustainable and profitable cannabis business is no walk in the park. Despite the industry’s massive revenue potential and media attention, achieving long-term success is rare. The landscape is riddled with pitfalls, and adversity often reveals the true mettle of a business leader.

Qredible: Fascinating insights, Mark. You mentioned the demise of prominent cannabis companies like MedMen. Could you expand on the implications of such events for the industry?

Mark: The closure of flagship dispensaries, like MedMen’s West Hollywood location, sends shockwaves through the industry. These establishments were instrumental in shaping the modern cannabis retail experience. However, their downfall underscores the challenges of sustainability and adaptability in this rapidly evolving landscape.

Accounting and Auditing in Cannabis

Qredible: Thank you for sharing your expertise, Mark. Let’s delve into the financial side of the cannabis industry. What are some of the unique accounting and auditing challenges faced by cannabis businesses?

Mark: Accounting and auditing in the cannabis industry present formidable hurdles. Many companies struggle with record-keeping and regulatory compliance, making it difficult for accounting firms to provide comprehensive services. Additionally, regulatory restrictions and insurance limitations further complicate matters, hindering the industry’s financial transparency.

Qredible: It’s evident that the cannabis industry is undergoing significant transformations. How do you see the role of investors evolving in this changing landscape?

Mark: Investors in the cannabis industry are demanding higher standards of accountability and transparency. The days of reckless speculation and “stupid money” are fading, giving way to a more mature and discerning investment environment. As the industry matures, investors seek well-managed businesses with robust financial practices and sustainable growth strategies.

Qredible: Thank you, Mark, for your valuable insights into the complexities of the cannabis industry. Before we conclude, could you share any upcoming events or initiatives aimed at addressing these challenges?

Mark: We’re actively involved in industry events and discussions aimed at addressing the pressing issues facing the cannabis sector. From banking regulations to product standards, these initiatives play a crucial role in shaping the industry’s future. I encourage all stakeholders to participate and contribute to these vital conversations.

Cannabis Banking Tiers

Qredible: Mark, you mentioned a subsidiary called Hawthorne, which experienced fluctuations in stock value despite its perceived leadership in the industry. Could you elaborate on the tiers within the cannabis sector and the recent trends in banking involvement?

Mark: Absolutely. The cannabis industry encompasses various tiers, from plant-touching operations to ancillary services. While tier one involves direct interaction with cannabis, tier two focuses on supporting services like banking, where I operate. Regarding banking trends, there’s been a notable exit of institutions from the cannabis space, driven by factors such as regulatory challenges and market dynamics.

Qredible: Peter, your insights into banking attrition within the cannabis sector are invaluable. Could you elaborate on the reasons behind banks withdrawing from cannabis-related services and the implications for the industry?

Peter: Certainly. The exit of banks from cannabis banking programs is a natural consequence of evolving market conditions and regulatory uncertainties. Institutions often struggle to sustain these programs amid shifting compliance requirements and limited profitability. As a result, we’ve observed a decline in banking participation, posing challenges for cannabis businesses seeking financial services.

Qredible: Mark, you mentioned the reluctance of banks to openly disclose their involvement in cannabis banking. Can you provide insights into this secrecy and any resources available for identifying banks active in the sector?

Mark: Indeed. Banking involvement in cannabis remains shrouded in secrecy due to competitive pressures and regulatory concerns. While some directories exist, they often lack accuracy and comprehensiveness. Moreover, banks and clients prefer discretion to avoid potential repercussions. Identifying cannabis-friendly banks typically requires industry connections and knowledge of key players rather than relying on public listings.

Qredible: Thank you, Mark and Peter, for sharing your expertise and insights into the complex world of cannabis banking. It’s been a pleasure discussing these critical topics with you both.

Mark: Likewise. Thank you for the opportunity to contribute to this important dialogue.

Peter: Thank you. I look forward to continued collaboration and knowledge-sharing within the industry.

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