Pub. 12 2021 Issue 2


CRBs and HRBs and MRBs, Oh My: Navigating the Intricacies of Cannabis Banking

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A new cash crop is finally coming to fruition in West Virginia: medical marijuana. This is not breaking news considering medical marijuana was legalized in West Virginia in 2017, the same year the Secure and Fair Engagement (SAFE) Banking Act was introduced in Congress.

Financial institutions may not have to fear federal repercussions for Marijuana-Related Businesses (MRBs) in the near future. In April of this year, the U.S. House of Representatives passed the SAFE Banking Act. While the Act has an uphill battle of passing the U.S. Senate, this is a clear indicator that attitudes toward marijuana are changing. During a virtual town hall event held in March 2021, Governor Jim Justice expressed openness to legalizing recreational marijuana if it means generating more tax revenue for West Virginia.

Given the rapidly changing stance on marijuana, it is expected that West Virginia will continue to see an increase in MRBs. Not only will MRBs be more prevalent, but there are other acronyms on the scene: Hemp-Related Business (HRB) and CBD-Related Business (CRB). Marijuana, hemp and CBD, derived from the same plant family, all fall under the metaphorical umbrella of cannabis. The differentiation of marijuana, hemp, and CBD is their level of tetrahydrocannabinol, more commonly referred to as THC.

The main compound in cannabis, THC and how much of it is the critical factor in what makes a business illegal in the eyes of the federal government. Hemp contains less than 0.3% of THC, and marijuana contains 0.3% or more. CBD is a secondary compound found in cannabis and does not have psychoactive properties. CBD products may contain more or less than 0.3% THC, depending on where it is sold.

With the changing views toward marijuana comes an emphasis on “know your customer” procedures, tasks and requirements for all financial institutions. Even if your institution does not have any customers directly producing marijuana, hemp or CBD, you may already have customers who generate revenue in one of the three businesses mentioned earlier. It could be the gas station that sells CBD capsules, a shop selling hemp textiles, or a sole proprietor who prepares a tax return for one or more MRBs. 

It is essential to know your customer and your customer’s business thoroughly. This would be the year to ensure your Cannabis Banking policy is in order, as examiners will likely scrutinize it due to the updates to Anti-Money Laundering (AML) and Customer Due Diligence (CDD).

In January of this year, Congress passed the National Defense Authorization Act, and with it came the AML Act. This Act strengthens the requirements when it comes to CDD, specifically beneficial owners of businesses. The public comment period – for implementing a practical ownership database that government agencies may use – closed in May 2021.

With all these new regulatory changes, how do you ensure your financial institution has its bases covered? For starters, if your financial institution does not have a written Cannabis Banking policy, consider developing one now. The policy should include several essential items, such as the three different MRB tiers.

  • Tier 1 – businesses that are directly involved with producing and selling marijuana
  • Tier 2 – businesses that assist in producing marijuana (i.e., process payments, sell marijuana farming supplies, etc.)
  • Tier 3 – businesses that provide services to Tier 1 or Tier 2 businesses, such as legal representation or accounting services

Tier 1 MRBs would be considered the highest risk of MRBs. Risk levels should decrease for Tier 2 and Tier 3 MRBs, with Tier 3 having the lowest risk.


Issued FinCEN guidance, the 2018 Farm Bill, and state laws such as West Virginia’s SB 386 are all tools that may offer further in-depth advice when constructing an MRB policy that aligns with the financial institution’s risk appetite.

Financial institutions should revisit their current Know Your Customer (KYC) procedures and Customer Identification Procedures (CIP). This will mitigate the chances of any surprises for new customers and their potential involvement with MRBs and other cannabis-related businesses. In anticipation of updates to beneficial ownership procedures, additional training and reviewing practical ownership requirements can alleviate the stress of whether all necessary information was obtained before account opening.

Internal updates to CIP may be as simple as implementing a questionnaire where the prospective customer attests to the nature of their business. The questionnaire may include the following:

  • Have the customer identify under which tier their business falls.
  • Have the customer disclose if any of their revenue is generated from sales or manufacturing of THC products.
  • Require the customer to attest to the level of THC in their products to assist financial institutions in identifying MRBs, HRBs or CRBs.
  • Dates and signatures on these questionnaires will substantiate pertinent information before account opening.
  • The opening of an account is just the beginning, as ongoing monitoring and Suspicious Activity Report (SAR) submissions will need to be conducted for the totality of the relationship.
  • Despite the rescinding of the Cole Memo in 2018, it is still used as an evaluation standard for filing the three MRB-related SARs.
  • Marijuana Limited SAR: An MRB does not raise any red flags outlined in the Cole Memo nor violate state law.
  • Marijuana Priority SAR: An MRB may raise red flags outlined in the Cole Memo or it may violate state law.
  • Marijuana Termination SAR: An MRB raised red flags outlined in the Cole Memo or violated state law.

SARs for MRBs still need to be completed if the state legally licenses the business. The 2018 Farm Bill made hemp no longer a Schedule 1 controlled substance. With hemp’s demotion came issued guidance stating SARs no longer would need to be filed on hemp-related business solely due to the nature of their business.

While it is up to each financial institution to determine whether they want to take the risk of banking cannabis, your policies and monitoring procedures addressing your stance will need to be made tangible. Possible future federal protections and West Virginia looking to generate more tax revenue should highlight the need for financial institutions to proactively take the steps now to prepare for this rapidly evolving industry. 

Gwyneth LoCascio is a Senior Associate at Arnett Carbis Toothman, LLP with over four years of experience in public accounting. Ms. LoCascio’s direct experience in servicing financial institutions includes financial statement audits, internal audits, loan review and regulatory compliance consulting. Ms. LoCascio can be reached at (304) 346-0441 or

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