Interviewees noted significant fees and costs associated with banking their business, with banks required to closely track product and comply with FinCEN reporting requirements in order to prevent the use of funds obtained illegally at a federal level.
The SAFER Banking Act would alleviate these restrictions, yet its fate remains uncertain.
Access to Banking Services
Though marijuana may be legal in some states, federal law prohibits most banks from working with cannabis businesses. This makes it challenging for weed businesses to receive electronic payments, bank loans or cash withdrawals to meet inventory management, employee payroll obligations and tax obligations.
Cash payments can often be the only solution available to businesses; this practice increases theft risks and necessitates investment in expensive security systems, while making it harder to manage cash reserves and keep detailed accounting records required for tax, compliance, and legal purposes.
House Representatives has attempted to rectify the situation with the Secure and Fair Enforcement Act, which would protect financial institutions that provide services for cannabis businesses from prosecution under CSA or Bank Secrecy Act; unfortunately it was rejected by Senate.
Cash-Intensive Operations
Relying on banks to assist cannabis operators is of utmost importance for business success. Banking relationships provide safe spaces to store cash receipts from sales, electronically process taxes and payments electronically and facilitate direct deposit for employees; additionally they also provide the infrastructure necessary for conducting daily physical inventory counts.
Operating cannabis companies on a cash basis leaves them exposed to theft, fraud and safety/security risks as well as complicating financial reporting and tax compliance processes. Furthermore, operating on cash makes companies vulnerable to theft/fraud risks that reduce transparency while hindering operational efficiency.
One way to reduce risk and logistics issues for both companies and banks is to work with providers who offer armored carriers capable of quickly transporting large sums on demand. Doing this may reduce some risks as well as logistics concerns for both.
Inconsistency in Banking Services
Cannabis businesses must often carry large sums of cash around with them – an action reminiscent of bank heist movies where criminals would mark all stolen cash with indelible ink – yet finding bank partners willing to accept this cash-intensive model can often prove challenging.
Furthermore, cannabis companies unable to gain access to banking services often find scaling more difficult, restricting entrepreneurs from expanding their business model or entering new markets, ultimately hindering industry expansion and job creation.
Colorado state government has taken measures to address this problem by creating and updating a roadmap to cannabis banking, released in 2020 and updated regularly since. The roadmap seeks to facilitate financial services for cannabis-related businesses through education, outreach and research and identifying and overcoming any potential obstacles or barriers along the way.
Legal Issues
Financial institutions also face difficulty serving cannabis businesses due to federal law still prohibiting bank services for cannabis-related businesses; banks must follow FinCen’s guidance and regulations or face penalties for breaking federal laws – something which is costly and time consuming for both the bank and business involved.
As a result, many cannabis businesses must operate using cash-only transactions – leaving them open to theft and other criminal acts while making it more challenging to serve customers and compete in the marketplace.
At present, cannabis industry leaders are seeing some encouraging progress on this front. For instance, the House recently passed the SAFE Banking Act which would enable banks to work with legal cannabis businesses; however, the bill has yet to pass through Senate. Leaders within this industry need to recognize any obstacles or challenges and remain proactive about finding solutions.