The world of legal cannabis banking is complex and difficult to navigate without the right network.
If you are just starting out in the legal cannabis industry, you may be surprised to learn that obtaining basic banking services can be an immense challenge. Whether other cannabis professionals advised you that banking is hard to find or your bank turned you away when you tried to open an account, it’s not surprising if you concluded early on that you have no banking options.
The truth is: There is no banking problem – or at least not one as pervasive as it once was. That doesn’t mean that every bank is willing to work with the cannabis industry – far from it, in fact – and it doesn’t mean that cannabis banking will be as simple as filling out an application. Here’s what you need to do to obtain banking for your cannabis business.
Why is cannabis banking so hard to get?
Cannabis banking’s tough reputation doesn’t come from nowhere. When the first medical cannabis program was legalized in California in 1996, not a single financial institution would work with the industry. From that point until 2014, when it was clear that legal cannabis was here to stay in the U.S., there were still few, if any, above-board options.
This was because most financial institutions approached cannabis banking through the lens of the Controlled Substances Act (CSA) and its classification of cannabis as a Schedule 1 drug. Bankers would not touch the industry for fear of violating money-laundering laws. In 2014, it became more apparent that this was untrue. Federal bank examiners, in fact, offered guidance and regulations on how to properly bank state-legal cannabis businesses. With the courage and hard work of early pioneers like former Partner Colorado Credit Union CEO Sundie Seefried, banking options began to open up.
Unfortunately, many of the banking issues stemming from those early days still persist today as myths. Many repeat the conventional wisdom that banks cannot work with cannabis businesses because of the ongoing federal prohibition. Surely they would like to, but not at the risk of losing their FDIC status. This notion is false but has demonstrated substantial staying power nonetheless.
Beyond this, cannabis-friendly banks do not typically advertise the fact that they work with the legal cannabis industry. This further drives the perception that banks won’t work with the cannabis industry. As a result, you’ll seldom walk into a bank branch and successfully ask to open an account for your cannabis business. In fact, in most cases, branch managers might not even be aware that the bank is willing to work with legal cannabis businesses – it could be a small program overseen by a corporate employee and not something that is general knowledge to each branch.
The good news is that as of April 2021, nearly 200 banks work with at least some sectors of the legal cannabis industry – you just have to know where to look to find them. These banks work with cannabis businesses in a legally compliant, transparent manner that has been endorsed by the Financial Crimes Enforcement Network (FinCEN), the FDIC, and other federal agencies responsible for the regulation of the banking system.
Cannabis banking workarounds and their consequences
Myth or not, many cannabis businesses have been unsuccessful in their search for banking and payment processing services. Newcomers to the cannabis industry might have even had the unpleasant experience of being turned away at a local branch when trying to open a business checking account.
Cannabis businesses who lacked compliant banking had to resort to one or more of these less-than-ideal alternatives:
- Operating on a cash-only basis: Many cannabis businesses chose to simply operate in cash after searching far and wide for a bank and coming up empty. This is not only a cumbersome and inefficient way to do business, but it invites both spontaneous and organized crime. It leads to accounting disasters. It poses the problem of storing literally millions of dollars in cash. Even today, banks contend with large sums of legacy cash from legal cannabis businesses that were forced to operate on an all-cash basis for years.
- Lying to banks: Some cannabis businesses refused to operate on a cash-only basis and instead chose to lie to the bank about what their business does. For example, a hydroponics equipment retailer that only works with the cannabis industry could claim to the bank that they work with all types of agricultural companies. Eventually, the bank would discover the true nature of the businesses and could terminate their account at any time. This also limits the ability of that company to market to the industry for fear of being discovered by their bank. The deceit also closed them off to additional banking services, such as finding funding, because they could not be open and honest with the bank about their needs.
- Employing illegal workarounds: In the absence of conventional banking, many cannabis businesses engaged in illegal workarounds for banking or payment processing services. For example, the cashless ATM is a system that fraudulently misrepresents cannabis sales as ATM withdrawals. This common system is used by dispensaries throughout the U.S., but the method constitutes bank fraud. At one time, these workarounds may have been needed, but today they are risky, inefficient, and increasingly targeted by law enforcement in criminal investigations. Businesses that use these workarounds are only asking for trouble.
Despite these obstacles, the legal cannabis industry became the fastest growing industry in the country and a boon to the economy, adding nearly 300,000 well-paying jobs to the U.S. economy since states began ending prohibition. Today, those obstacles are things of the past and the cannabis industry can become truly unfettered with fully legal banking and payment processing.
The cannabis banking crisis is over
Luckily, these challenges and risks are on their way to becoming a thing of the past. Now through Fincann, you can obtain legal, compliant, transparent cannabis banking and payment processing services, in any state, and for any cannabis industry sector. These services include:
- Checking accounts: The basic checking account, to many, is something that is taken for granted. Cannabis entrepreneurs know better. For years, cannabis businesses were forced to operate in cash only – but checking accounts are now available to the entire industry. This simplifies everything from payroll, to buying business supplies, to paying vendors.
- Merchant processing accounts: Merchant processing accounts are the first legitimate method by which cannabis businesses can accept MasterCard, Visa, Discover and ATM debit cards for in-person sales with their customers and suppliers. Merchant processing accounts are fully supported by a cannabis-friendly bank and are 100% compliant with federal regulations.
- Online ACH transfers: Ecommerce payments have been a longtime challenge for cannabis businesses, but no longer. Today, online ACH transfers allow customers to pay for cannabis transactions by entering their routing and bank account information into a secure payment portal. ACH transfers enable cannabis e-commerce businesses to take payment directly online without complicated or illegal workarounds.
New cannabis businesses should seek compliant banking from the start
No matter how challenging it may seem, there is no reason for you to utilize cannabis banking workarounds with the available above-board options you can use. It is simply not worth the risk of getting caught, losing your banking, and potentially facing blacklists or criminal charges.
Legacy cannabis businesses that have opted to lie to their bank, use cashless ATMs, or employ other illegal workarounds should begin transitioning immediately to compliant banking. The ability to demonstrate a good faith effort to bring your business into compliance could go a long way to convincing authorities that your business is legitimate if they shine their spotlight on you.
New cannabis businesses do not have that same luxury. Today is no longer the Wild West of cannabis banking. New cannabis businesses that willfully choose an illegal payment processing method or who choose to lie to their banks today may not find such lenience, even if they begin the transition tomorrow.
That is why it is critically important that all new cannabis businesses start out with full transparency and compliance from the very beginning. The regulations surrounding the legal cannabis industry are crystallizing and the historic laissez faire attitude toward bank fraud and payment processing schemes is just that: history.
How to find compliant cannabis banking
Approximately 3.5% of U.S.-based banks are willing to work with the cannabis industry, and not every one of those banks services every sector of the industry. Some only work with THC licensees like dispensaries, while others only handle CBD businesses. Even though this 3.5% is enough to offer banking to all sectors of the industry in all 50 states, it still represents a minuscule fraction of the larger U.S. banking system. But fear not, you can still find a bank to work with you by following these simple steps:
- Contact an experienced banking network: Banking networks like Fincann offer the ability to connect you with legally compliant banking and payment processing for your cannabis business. They can also help you prepare for the regulatory changes ahead.
- Prepare financial documents: Any bank will want to see finances and data, including information from your seed-to-sale tracking system and point of sale software. Prepare this data for your initial meeting with your bank – this is the bedrock of a fully transparent, compliant relationship.
- Do not hold anything back. Legally compliant banking relationships are founded on full transparency. Your bank should know the ins and outs of your business’s operations and financials. You should literally be an open book – show your banker your accounting and explain the sources of any legacy cash you might have accrued. Fincann is happy to help provide expert guidance for this.
- Meet with your bank: Once you connect with your bank, it’s time to meet and discuss the details of your business and the services you will be needing. After reviewing your financial documentation, you can be set up for fully compliant banking and payment processing services for both in-person transactions and online payments via ACH transfer.
- Grow your business: Without the burden of lying to your bank or operating solely in cash, your cannabis business is free to grow and scale just like a business in any other industry.
To simplify the process of securing any or all of the following, banking networks like Fincann have spent years establishing relationships with financial institutions throughout the country. With one call, the entire network is at your disposal: you can connect directly with a bank that wants to work with the cannabis industry, without guesswork or applying and waiting just to hear a “no.”
The future of the cannabis industry is fully legal and compliant banking and payment processing. Start your cannabis business right by establishing a transparent relationship with a financial institution that supports your business.