Editor's Note: This is a guest article by Tony Repanich, President and COO of Shield Compliance, a company that provides compliance management platforms for high-risk banking. Repanich has 25 years of experience in commercial and retail banking.

The U.S. House of Representatives' passage of the Secure and Fair Enforcement (SAFE) Banking Act is undoubtedly the biggest step forward in the cannabis industry's march toward greater legitimacy and ultimately federal legalization. For cannabis-related businesses (MRBs) operating in legal states, this is a major victory. At the same time, it creates growth opportunities for financial institutions that have been on the sidelines of this highly profitable industry due to fears of federal prosecution.

Although the SAFE Banking Act is still far from becoming law (the chances of it passing in the Republican-controlled Senate are "slim to none"), banks should view the House vote as a call to action. In my discussions with financial institutions across the country about cannabis banking, I have become very familiar with the reasons many institutions are reluctant to get involved. But with growing public acceptance of cannabis, momentum for state-level legalization, and progress at the federal level, financial institutions should take steps to position themselves in this rapidly growing market.

This does not necessarily mean hanging out an "open for business" sign today. Instead, banks should begin to understand how the cannabis industry operates, the compliance requirements involved, the impact on bank operations, and ultimately how serving this industry can place financial institutions in a better position when competing for new sources of low-cost deposits.

In recent years, financial institutions have faced immense pressure to replace wholesale and brokered deposits with lower-cost retail deposits. Offering cash incentives to attract new checking accounts is a common strategy. But as any banker knows, the competition for the same potential customers is fierce.

High-risk banking programs, such as cannabis banking, offer a less competitive battlefield. If financial institutions are willing to learn how the industry operates, how MRBs function, and the associated regulatory requirements, they can gain highly profitable new customer relationships with far less competition than in other areas. Moreover, because customers in these industries have traditionally struggled to access banking services, the added costs to financial institutions can be offset by higher service fees. The spread between what small banks pay on deposits and what they earn on loans can account for 70% to 80% of their total revenue, so every basis point improvement in the spread directly boosts profits.

I spent most of my career as an executive at community banks and know well that financial institutions are reluctant to be the first to try something new. Fortunately, pioneering financial institutions have been serving this industry for several years and have already passed multiple examination cycles. Banks entering this space now do not need to write the playbook from scratch.

Banks serving the cannabis industry bear a dual responsibility. First, compliance departments must be deeply involved in the day-to-day activities of MRB clients. Second, financial institutions serving cannabis clients must find new ways to organize and reconcile customer data with external data sources to reduce risk. These commitments represent a significant shift for most compliance departments, so bank leadership and boards must clearly define the business objectives of serving high-risk customers and maintain discipline.

As cannabis legalization efforts advance in Congress, financial institutions will be better positioned to provide banking services to MRBs. The ultimate payoff—new sources of low-cost deposits with less "enemy fire"—is powerful. However, if banks wait too long to get involved, they may find themselves competing for customers on another crowded battlefield.

Repanich can be reached at [email protected].