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Cannabis lending for financial institutions: Opportunities, risks, and best practices

Terri Luttrell, CAMS-Audit, CFCS
February 6, 2025
Read Time: 0 min

This article covers these key topics: 

Is lending to CRBs right for your institution?

Now that the cannabis industry is maturing and better understood, is it time for financial institutions to take on the risk of cannabis lending? Weighing the risks and opportunites is your first step.

Navigating the complexities of cannabis banking

The cannabis industry is growing at an unprecedented pace, and with it comes exciting opportunities for financial institutions to expand their loan portfolios. Cannabis-related businesses (CRBs)—spanning everything from cultivation to retail—represent a market in need of lending services, from working capital to real estate and equipment loans. Yet, they remain underserved due to the risks involved. Federal regulations under the Controlled Substances Act (CSA) still classify marijuana as a Schedule I substance, along with heroin and methamphetamine. Although most states have legalized marijuana for medicinal or recreational use, the fact remains that it is federally illegal. Many are calling for a re-evaluation of federal laws to better match state legislation.

Most traditional financial institutions are federally insured, and technically, if banks and credit unions provide services to CRBs, they could be criticized for participating in money laundering. With this regulatory risk and associated operational complexities, there is plenty for financial institutions to consider before diving into cannabis lending. With the right approach, the rewards may outweigh the risks, creating opportunities for both financial institutions and the communities they serve.

Now that the cannabis industry is maturing and better understood, is it time for financial institutions to take on that risk? According to FinCEN suspicious activity report (SAR) data, over 800 financial institutions have decided yes, at least to banking deposit services for CRBs. But what about lending?

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The opportunities: Why cannabis lending may make good business sense

The legalized cannabis market grew $2.6 billion year-over-year in 2024, totaling $31.4 billion in annual revenue. This staggering amount presents a lucrative opportunity for banks and credit unions to step in and meet the growing need for banking services while supporting businesses within their communities.

Cannabis lending is more than just a potential revenue stream. It’s a way to serve businesses that are often forced to operate outside traditional financial systems. CRBs frequently face difficulties securing loans or even maintaining a bank account, leaving them to manage their cash businesses outside of traditional financial institutions. Imagine the stress of running a thriving enterprise while worrying about security risks tied to cash-intensive operations. Financial institutions can fill this gap, creating stability for CRBs while fostering long-term, loyal customer relationships.

The benefits extend beyond the businesses themselves. Lending to CRBs supports local economies by fueling job creation, boosting tax revenue, and promoting community growth. For community financial institutions, this is an opportunity to align with their mission of empowering local businesses. For those willing to innovate, it’s a chance to differentiate themselves in an underserved market, positioning themselves a step ahead of their competition. Getting on board now allows banks and credit unions to profit from the need for banking services, allowing higher loan rates to cover the associated risks.

Challenges: What’s standing in the way?

Entering the cannabis lending market isn’t without risk. Federal and state laws are at odds, creating a gray area that financial institutions must navigate carefully. Even with strong compliance programs, there’s always the potential for scrutiny from regulators. There is a current understanding among regulators and financial institutions that it is “ok” to bank CRBs, but this informal agreement is unwritten and could change at any moment.

How to secure cannabis-related loans is critical to ensure your collateral doesn’t literally “go up in smoke.”  Lenders may require loans to be secured by non-product sources, such as cash, real estate, equipment, or the cannabis license itself. These alternative collateral options help mitigate risk and provide lenders with more stable and recoverable assets in the event of default.

Then, there’s the operational side. Financial institutions should have operational accounts when considering lending to CRBs to truly understand the relationship. CRBs are cash-intensive businesses, regardless of federal legality.  For financial institutions, this means investing in the right anti-money laundering/combating the financing of terrorism (AML/CFT) software to monitor transactions, flag suspicious activities, and ensure compliance with AML/CFT requirements. However, compliance goes beyond software. Institutions must also establish robust internal controls, enhance staff training, and refine customer due diligence (CDD) procedures to manage risks effectively. Ongoing regulatory uncertainty means financial institutions must stay agile, continuously updating policies and procedures to align with shifting state and federal guidance.

Let’s not forget reputation risk. Serving CRBs might raise questions among more conservative stakeholders and within the communities they serve, but clear policies and open communication can help mitigate these concerns. When institutions approach cannabis lending with transparency and professionalism, they can address reputational risks head-on.

Preparing to grow your loan portfolio: Steps to take

Financial institutions considering cannabis lending need a roadmap, starting with compliance. Robust AML/CFT programs tailored to CRBs are crucial, as is ongoing monitoring to ensure these businesses operate within the law. Keep an eye on federal developments like rescheduling marijuana under the CSA and the SAFE (or SAFER) Banking Act, which could ease regulatory burdens if passed.

Next, set clear internal policies. Define loan criteria, particularly collateral requirements, establish risk thresholds, and determine how to handle unique challenges posed by CRBs. For example, will you require additional licensing documentation from cannabis businesses to verify compliance with state laws? These details matter. Remember the basics of lending strategy: relationship, character, and collateral being key components.

Technology will also play a vital role. Automated systems for compliance, transaction monitoring, and customer due diligence can save time and reduce human error. Consider partnering with experts—compliance advisors, specialists, or consultants familiar with the cannabis industry. Their insights can be invaluable as you navigate this complex market.

Adequate staffing will also be critical to the success of a CRB lending program. To safeguard the integrity of your program, increased monitoring, site visits, and enhanced due diligence review will be required, and all require qualified staff. Regulators won’t care about your AML/CFT budget, so be prepared to charge appropriate rates to cover the additional costs.

A balanced approach: Seizing the opportunity responsibly

Cannabis lending isn’t a decision to be taken lightly, but it’s one worth considering. By serving CRBs, financial institutions can help stabilize a fast-growing industry while creating new revenue streams. It can be a win-win for institutions and the communities they serve. Early adopters can benefit financially, just as the first financial institutions did when they opened their services to CRB deposit accounts.

That said, success in this space requires preparation, adaptability, and a strong commitment to compliance. Get ahead of this decision by including your regulator in the planning phase. Institutions must stay informed on state laws and requirements, invest in the right tools, and approach the market with care. The challenges are real, but so are the rewards. With the right strategy, cannabis lending can become a key part of a financial institution’s growth plan—offering profitability, community impact, and innovation. The cannabis industry is evolving quickly. Is your institution ready to grow with it?

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About the Author

Terri Luttrell, CAMS-Audit, CFCS

Compliance and Engagement Director
Terri Luttrell is a seasoned AML professional and former director and AML/OFAC officer with over 20 years in the banking industry, working both in medium and large community and commercial banks ranging from $2 billion to $330 billion in asset size.

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About Abrigo

Abrigo enables U.S. financial institutions to support their communities through technology that fights financial crime, grows loans and deposits, and optimizes risk. Abrigo's platform centralizes the institution's data, creates a digital user experience, ensures compliance, and delivers efficiency for scale and profitable growth.

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