No Result
View All Result
SUBSCRIBE | NO FEES, NO PAYWALLS
MANAGE MY SUBSCRIPTION
NEWSLETTER
Corporate Compliance Insights
  • Home
  • About
    • About CCI
    • CCI Magazine
    • Writing for CCI
    • Career Connection
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Library
    • Download Whitepapers & Reports
    • Download eBooks
    • New: Living Your Best Compliance Life by Mary Shirley
    • New: Ethics and Compliance for Humans by Adam Balfour
    • 2021: Raise Your Game, Not Your Voice by Lentini-Walker & Tschida
    • CCI Press & Compliance Bookshelf
  • Podcasts
    • Great Women in Compliance
    • Unless: The Podcast (Hemma Lomax)
  • Research
  • Webinars
  • Events
  • Subscribe
Jump to a Section
  • At the Office
    • Ethics
    • HR Compliance
    • Leadership & Career
    • Well-Being at Work
  • Compliance & Risk
    • Compliance
    • FCPA
    • Fraud
    • Risk
  • Finserv & Audit
    • Financial Services
    • Internal Audit
  • Governance
    • ESG
    • Getting Governance Right
  • Infosec
    • Cybersecurity
    • Data Privacy
  • Opinion
    • Adam Balfour
    • Jim DeLoach
    • Mary Shirley
    • Yan Tougas
No Result
View All Result
Corporate Compliance Insights
Home Featured

The Intersection of EDD and Banking Cannabis

Minimizing Risk with Enhanced Due Diligence

by Brandi Reynolds
February 24, 2021
in Featured, Financial Services
cannabis leaf on $100 bill

As the cannabis industry continues to grow, so does its demand for banking services. Brandi Reynolds champions an enhanced due diligence (EDD) program specifically for these customers.

A quick read through recent regulatory enforcement actions against financial institutions will show that regulators are intensely interested in higher-risk customers and in the enhanced due diligence (EDD) institutions must adopt to accept them. Examiners perceive the identification and management of higher-risk customers to be a foundational topic. If problems lurk in this area, there are likely larger problems throughout the BSA/AML program. This perception adds risk when financial institutions begin offering banking services to industries such as the cannabis industry.

The Problem with Cannabis

The demand for banking services from the cannabis industry is growing rapidly as more states legalize cannabis in some form. This growing demand leaves financial institutions with competing priorities. On the one hand, the institution must meet the banking needs of the community and enjoy the fee income that comes with it. On the other hand, the institution must avoid regulatory scrutiny. With the right risk management program, financial institutions can manage both priorities.

From a money-laundering and terrorist-financing perspective, what is the biggest risk BSA officers are managing? It’s likely the risk that the cash passing through the business may be mixed with illicit cash from other activities, be it from organized crime, less sophisticated drug activities or any other form of illegal activity. This risk is enhanced with cannabis because federal restrictions have forced the industry away from most banking services. Breaking this risk down further, one could identify the following BSA/AML functions as being key:

Knowing Your Customer

Who are the real beneficial owners of the cannabis company? Determination of ownership is often particularly difficult with cannabis companies because the layers of ownership are frequently complex. Operating agreements sometimes obscure who really owns the cannabis license and who is benefiting from the cannabis company.

Monitoring and EDD

Monitoring goes beyond following the money to having a thorough understanding of how much cash that cannabis company should be generating to begin with. An institution’s monitoring and EDD analysts have to become cannabis experts. Software used by the cannabis industry referred to as “seed-to-sale” software generates tracking information and logs, and the financial institution should request this data to help its BSA/AML staff understand the origins and reasonableness of the cash deposits. Following that, the BSA/AML department’s cannabis experts should begin a daily monitoring and reconciling process.

Deep Dive into Enhanced Due Diligence

Enhanced due diligence is a regulatory creation of the federal financial institution regulators. It appears under that name in issuances from the Federal Financial Institutions Examinations Council. Originally created as an anti-money laundering protection for banks with foreign customers, it has quickly evolved as a means to protect institutions in dealing with customer they consider to be high risk. The source of the risk can be the customer’s geographic location, business organization, business (or personal) record or industry – cannabis, in this case.

The best analogy to use to describe EDD on a cannabis dispensary is to consider the early days of performing EDD on gas stations. Bankers may remember counting the number of pumps and taking into consideration how many hours per day the gas station is open and whether it’s at a busy intersection or on a quiet country road. The basic principle is the same for cannabis – get a good estimate of the volume of business. If the cannabis company is a grower, are they growing indoors? Outdoors out in the open? Outdoors in a greenhouse? It makes a difference. If the cannabis company is a dispensary, what forms of cannabis are they selling? Flower? Edibles? Vape?

To understand the nuances of growing and selling cannabis, the BSA/AML department’s cannabis experts can take classes at the local college or pursue any number of certificate programs offered by established vendors in the industry. Then they should develop a written cannabis EDD program that has all the traditional EDD elements but incorporates the nuances of cannabis. Management should be ready to evidence the expertise the EDD analysts have. The gaps traditional EDD suffers from will likely present themselves in the cannabis EDD program, so the institution should address those gaps before they even occur. Typical EDD failures are incomplete or incorrect data, incomplete or weak analysis of the factual EDD data points, conclusions that aren’t supported by the analysis and a lack of supporting documents.

Conclusion

There will be no retreat in the growth of the cannabis industry. The industry’s demand and attractive profits – combined with economic pressures on financial institutions – might entice more financial institutions into banking the high-risk cannabis industry. The term “high-risk” should lead BSA/AML officers straight to the EDD program. A well-designed cannabis EDD program will help manage the risk of banking the cannabis industry and give the institution an opportunity to showcase the expertise of the EDD analysts. A quality EDD program staffed with people expert in the cannabis industry should help keep negative exam findings at bay.


Tags: AMLBank Secrecy Act (BSA)CannabisDue Diligence
Previous Post

Ethisphere Announces the 2021 World’s Most Ethical Companies

Next Post

Diligent to Become Largest Global GRC SaaS Company Through Galvanize Acquisition

Brandi Reynolds

Brandi Reynolds

With a career dedicated to navigating the complexities of compliance and risk management, Brandi Reynolds has cultivated expertise that spans multiple industries and regulatory landscapes. In 2017, Brandi founded CorCom, a consultancy specializing in financial services, serving both banking and non-banking institutions. In 2021, Bates Group acquired CorCom. Her experience encompasses a broad spectrum, from policy development and internal controls to regulatory audits and risk mitigation strategies. A member of ACAMS since 2004, Brandi holds multiple certifications and is part of the ACAMS content creation task force, which develops content for its examinations.

Related Posts

board of directors meeting table

Before You Say Yes to That Board Seat: A Director’s Due Diligence Checklist

by Chase Cole and Sidney Edgar
June 24, 2025

Public company directors face scrutiny from Wall Street, Congress, the SEC and beyond — comprehensive preparation is essential for business...

drug cartel soldier camo

Leveraging Human Rights Frameworks to Combat Emerging Cartel Risks

by Nate Lankford, Matteson Ellis and Nisha Sawhney-Murkett
May 19, 2025

As enforcement priorities shift to cartels and foreign terrorist organizations, established human rights processes can identify and mitigate emerging legal...

monies illustrating money laundering

Power Shift: What Happens When America Steps Back From Global AML Enforcement?

by Joe Biddle
April 15, 2025

EU's new anti-money laundering authority emerges as potential counterweight amid uncertain US priorities

merger concept figurines

When Money Isn’t Cheap, M&A Due Diligence Must Go Deeper

by Jim DeLoach
March 17, 2025

Today's dealmakers must scrutinize targets through multiple lenses to avoid costly post-acquisition surprises

Next Post
red paper plane breaking rank from white paper planes

Diligent to Become Largest Global GRC SaaS Company Through Galvanize Acquisition

No Result
View All Result

Privacy Policy | AI Policy

Founded in 2010, CCI is the web’s premier global independent news source for compliance, ethics, risk and information security. 

Got a news tip? Get in touch. Want a weekly round-up in your inbox? Sign up for free. No subscription fees, no paywalls. 

Follow Us

Browse Topics:

  • CCI Press
  • Compliance
  • Compliance Podcasts
  • Cybersecurity
  • Data Privacy
  • eBooks Published by CCI
  • Ethics
  • FCPA
  • Featured
  • Financial Services
  • Fraud
  • Governance
  • GRC Vendor News
  • HR Compliance
  • Internal Audit
  • Leadership and Career
  • On Demand Webinars
  • Opinion
  • Research
  • Resource Library
  • Risk
  • Uncategorized
  • Videos
  • Webinars
  • Well-Being
  • Whitepapers

© 2025 Corporate Compliance Insights

Welcome to CCI. This site uses cookies. Please click OK to accept. Privacy Policy
Cookie settingsACCEPT
Manage consent

Privacy Overview

This website uses cookies to improve your experience while you navigate through the website. Out of these, the cookies that are categorized as necessary are stored on your browser as they are essential for the working of basic functionalities of the website. We also use third-party cookies that help us analyze and understand how you use this website. These cookies will be stored in your browser only with your consent. You also have the option to opt-out of these cookies. But opting out of some of these cookies may affect your browsing experience.
Necessary
Always Enabled
Necessary cookies are absolutely essential for the website to function properly. These cookies ensure basic functionalities and security features of the website, anonymously.
CookieDurationDescription
cookielawinfo-checbox-analytics11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Analytics".
cookielawinfo-checbox-functional11 monthsThe cookie is set by GDPR cookie consent to record the user consent for the cookies in the category "Functional".
cookielawinfo-checbox-others11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Other.
cookielawinfo-checkbox-necessary11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookies is used to store the user consent for the cookies in the category "Necessary".
cookielawinfo-checkbox-performance11 monthsThis cookie is set by GDPR Cookie Consent plugin. The cookie is used to store the user consent for the cookies in the category "Performance".
viewed_cookie_policy11 monthsThe cookie is set by the GDPR Cookie Consent plugin and is used to store whether or not user has consented to the use of cookies. It does not store any personal data.
Functional
Functional cookies help to perform certain functionalities like sharing the content of the website on social media platforms, collect feedbacks, and other third-party features.
Performance
Performance cookies are used to understand and analyze the key performance indexes of the website which helps in delivering a better user experience for the visitors.
Analytics
Analytical cookies are used to understand how visitors interact with the website. These cookies help provide information on metrics the number of visitors, bounce rate, traffic source, etc.
Advertisement
Advertisement cookies are used to provide visitors with relevant ads and marketing campaigns. These cookies track visitors across websites and collect information to provide customized ads.
Others
Other uncategorized cookies are those that are being analyzed and have not been classified into a category as yet.
SAVE & ACCEPT
No Result
View All Result
  • Home
  • About
    • About CCI
    • CCI Magazine
    • Writing for CCI
    • Career Connection
    • NEW: CCI Press – Book Publishing
    • Advertise With Us
  • Explore Topics
    • See All Articles
    • Compliance
    • Ethics
    • Risk
    • FCPA
    • Governance
    • Fraud
    • Internal Audit
    • HR Compliance
    • Cybersecurity
    • Data Privacy
    • Financial Services
    • Well-Being at Work
    • Leadership and Career
    • Opinion
  • Vendor News
  • Library
    • Download Whitepapers & Reports
    • Download eBooks
    • New: Living Your Best Compliance Life by Mary Shirley
    • New: Ethics and Compliance for Humans by Adam Balfour
    • 2021: Raise Your Game, Not Your Voice by Lentini-Walker & Tschida
    • CCI Press & Compliance Bookshelf
  • Podcasts
    • Great Women in Compliance
    • Unless: The Podcast (Hemma Lomax)
  • Research
  • Webinars
  • Events
  • Subscribe

© 2025 Corporate Compliance Insights