How a Canny Bank Is Making Its Mark In Cannabis Payments

Cannabis remains a federally illegal drug in the United States, but various states have acted over the past decade to legalize it and sales continue to grow fast enough that the market remains potentially lucrative for processors and banks.

An example of how a major financial institution has entered this market is Raleigh, N.C.-based First Citizens Bank, which in 2021 began serving the transaction needs of growers and retail sellers. In 2023, the bank acquired the assets of Silicon Valley Bank, which had provided some banking services to businesses that support the cannabis industry. It collapsed, however, for other reasons, in particular its heavy exposure in cryptocurrency.

Though First Citizens had already entered the cannabis business, “SVB was a big one for us,” said Jason Mills, executive director of merchant services at the bank. Mills, along with two colleagues, spoke Tuesday at the Southeast Acquirers Association conference in Orlando, Fla.

Another opening for the bank occurred with passage of the Agriculture Improvement Act of 2018, also known as the Farm Bill. The act legalized the production of hemp, or cannabis sativa, at a THC concentration of no more than 0.3%. First Citizens “made significant investments to be compliant” with both the Farm Bill and rules from the card networks, noted Ben Kornegay, enterprise merchant risk manager for the bank.

Much depends on execution and adherence to relevant law, the bank’s executives stressed. “We can be a leader in this space. If we do it the right way, there’s significant upside,” said Mills. U.S. cannabis sales reached $38.5 billion last year and will double by 2030, according to Grand View Research.

But that growth entails strict scrutiny at the bank, the officials said. “We are quick to act if we see something nefarious. We want to stay on the up-and-up with the card brands,” said Kornegay. Vigilance is essential, the executives said. Added Dana Lomas, director of merchant sales, “We know our clients inside and out. Especially with our cannabis clients, we can see across the board.”

For underwriting merchants and growers, the more information the better, they said. “Data is key on the front end,” said Mills. “It makes for an easier conversation.” Here, the bank keeps a watchful eye on the business, the executives stressed. “We have a dedicated team that does nothing but cannabis deals,” said Kornegay. “We’re only doing 0.3% growers and lower.”

Even rolling paper, said Mills, is subject to the same “compliance monitoring” used with cannabis. And payments generated by so-called Tier One dispensaries aren’t accepted, he said, as they are considered a higher risk due to their involvement in cannabis cultivation. “I never thought I’d be involved in cannabis,” he joked. “I wish I’d studied chemistry.”