Many banks avoid cannabis like the plague. Because major financial institutions are insured by the federal government, and marijuana is federally illegal, banks face severe penalties if they process funds from illicit transactions. That’s also why, if you’ve purchased marijuana from a dispensary in a state where it was legal, you probably paid cash.
In theory, those rules don’t apply to hemp, which is legal under state and federal law. For most banks, however, the risk isn’t worth the reward. First Citizens, however, dived in early. It launched a cannabis program in 2018, catering to what senior vice president Ryan Palmquest described as a “tremendously underserved” industry.
“People were looking for stability and legitimacy—those are two things that they just were missing,” said Palmquest, who runs the cannabis program. “There were not a lot of banks out there that were going to be there for them for the long haul, and to do that, you have to have a tremendous understanding of the regulatory framework that exists.”
The bank, which originated in Eastern North Carolina, only deals with hemp, and it imposes strict rules on its clients to ensure that they don’t sell anything that crosses the legal line.
The Assembly talked to Palmquest about how his bank helps hemp businesses stay compliant.
This interview has been edited for length and clarity.
The Assembly: How does First Citizens navigate the changing regulations?
Ryan Palmquest: The fluidity of it might be the most challenging thing, and you have to have a compliance team that is constantly on top of it. They have to be researching state and federal law changes, have to be looking at at any kind of [U.S. Food and Drug Administration] messaging that comes out, any warning letters that have been sent out—we have to really spend a lot of time and energy making sure that our clients are protected.
What rules do you have in place for clients?
Part of our compliance platform is to not only do an upfront due diligence of and research on any individual or company that’s looking to join our cannabis program, but we require documentation to be provided to ensure that our bank is working with a company that is both state and federally legal and compliant.
“People were looking for stability and legitimacy—those are two things that they just were missing.”
Ryan Palmquest, First Citizens Bank
We collect certificates of analysis, for instance, so we require products from federally licensed labs that can ensure that we are doing our part to not be involved in any sale or manufacturing or processing of any product that is not currently legal based on the 2018 Farm Bill.
How does your bank navigate interstate commerce laws that restrict the shipping of marijuana across state lines?
Marijuana products cannot go across state lines, so we’re not banking any of those products. However, CBD and hemp products are legal.
We scan websites, and we’re looking deeply into the products that are sold. We ensure that the products that are being sold and shipped adhere to state and federal law.
I think if you’re talking to the banks that are currently banking marijuana, they would tell you that there can be no shipping across state lines—that cannot happen on the marijuana side. And states police that very closely.
How will your bank handle the looming federal ban?
That’s what’s creating a lot of the headache and concern for some of our clients, because they’re going to have to reformulate products and do quite a bit on their end to comply with what will be, if nothing changes, federal law coming in November.
There are multiple ways that legislators are looking at carveouts, because they understand that there are a lot of products that may have been included in this ban that there wasn’t an intention for. So there could be products that are lumped into this ban that may not have been the intention originally, and a lot of that still is to be determined. We need to see this hemp law actually implemented to truly understand the ramifications of what that legislation means.
I expect a lot of our clients to pivot as necessary, and if 95% of their products do go away, then I’m certain that they will find products that still meet their customers’ needs, and we’ll be there to bank them every step of the way.
How do you see the cannabis industry evolving?
Cannabis is a complicated, sometimes inflammatory topic in the industry, but I think that the future is extremely bright for cannabis. I don’t see any legislation coming that would preclude the success or limit the success of the future.
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