GUIDE: AML compliance for Marijuana-related businesses

GUIDE: AML compliance for Marijuana-related businesses

When getting into business relations with the Cannabis business industry one must correctly identify whether the business or the beneficial owner is considered to be a high-risk one.

Depending on whether the business is producing cannabis products or touches upon the support of producers - the risk level varies.

Marijuana-related businesses (MRBs) are divided into the following tiers:

  1. Tier I MRB includes businesses dealing in seeds, processing, product testing, planting and other elements of cultivation, and dispensaries. State license requirements apply. Tier I MRBs face significant compliance burdens - enhanced due diligence requirements, as well as ongoing monitoring and assessment. Tier I MRB is Considered to be the highest risk
  2. Tier II. A company that supports Tier I MRBs, such as packaging suppliers, marijuana software providers, and businesses whose primary customers are Tier I MRBs. Financial institutions have requirements from FinCEN regarding providing Tier II MRBs financial services.
  3. A Tier III MRB has case-by-case connections with Tier I or Tier II MRBs. This may include lawyers, accountants, food delivery businesses, and property owners. As a result, their banking and payments could also be subject to the same concerns outlined above.

When creating AML compliance protocol, it is definitely recommended to use the 2018 Farm Bill, the June 2020 FinCEN Advisory Report, and the 2019 Guidance from Federal Banking Agencies (USA) and use local governmental laws and guidances depending on Countries of business registration and products supply and use.

Cannabis products are divided into hemp, Cannabidiol (CBD) oil, and marijuana.

These categories are treated differently from a legal and regulatory standpoint.

Hemp is a variety of the Cannabis sativa plant species that is grown specifically for commercial use. Hemp can be differentiated from marijuana by the amount of THC produced by the plant. Hemp fibers can be used to make an assortment of products including paper, clothing, textiles, rope, building materials and compost. Hemp seeds and the oil produced from them can be used as healthy nutrient-rich superfoods.

CBD oil is obtained from the flower and leaves of the hemp plant. It is not the same as hemp seed oil, which comes from the seed and contains little to no CBD. Both hemp and products containing CBD oil are treated in the USA the same from a legal and regulatory standpoint. CBD is also subject to Food and Drug Administration oversight with respect to how products containing CBD can be advertised. All growers, processors and dealers must be approved, registered and/or licensed by the U.S. Department of Agriculture (USDA). Hemp that is not produced in accordance with the 2018 Farm Bill is considered illegal marijuana. FinCEN recently issued guidance regarding due diligence requirements under the Bank Secrecy Act (BSA) for hemp-related business clients.

Marijuana is the dried leaves and flowering tops of either the Cannabis Sativa or Cannabis Indica plant. Marijuana contains a significant amount of the psychoactive substance THC.

The legality of Cannabis must be checked in every country.

With MRBs, currently, 36 states have legalized the distribution of medicinal and/or recreational marijuana.

Map showing the legal status of recreational cannabis across the world.💙 Legal 🧡 Illegal but decriminalized 💗 Illegal but often unenforced ❤️ Illegal 🤍 Legality unknown Data were taken from Wikipedia: Legality of cannabis. Map reflects the legal status of possession only; other aspects such as cultivation or sale may vary. Author: Jamesy0627144

Map showing the legal status of medical cannabis across the world. 💚 Legal as authorized by a physician 💙 Legal for any use (no prescription required) 🤍 Illigal. Data were taken from Wikipedia: Legality of cannabis. The map does not reflect countries that have approved the use of isolated cannabinoid drugs, such as Sativex or Marinol. Author: Jamesy0627144

KYC Process

For Companies, the KYC process starts with the onboarding request, followed by data capture and initial CDD/CIP (Customer Due Diligence / Customer Identification Program), and then enhanced due diligence (EDD) for KYC.

We may help you with checking up on Corporate documents, Companies' business activities, Directors, Shareholders and UBOs.

Identification of UBOs varies from state to state. Typically, UBOs are identified via Marijuana License Application documents, Public Records Requests, and/or Corporate Registration documents. For example, Licensed cultivators, processors and sellers of cannabis under the Cannabis Act (Canada).

KYC check of individuals is extremely important for Сannabis retailers. Manual ID checks or barcode scanning to verify IDs may lead to regulatory violations, license suspensions, and fines. In most cases, barcodes attached to a fake ID will work.

By using an online verification process Cannabis retailers will eliminate manual review and underage selling, create a faster customer experience, and arrange contactless workflows due to COVID standards.

Neglecting the KYC process can result in a negative reputation, loss of customers, fines and suspensions that lead to a significant loss of revenue.

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