Many cannabis businesses find it challenging to secure bank accounts, credit cards and loans; this limits their financial flexibility and forces them to rely solely on cash-only policies.
Federal banking regulations and stigma surrounding cannabis companies make it challenging for banks to provide services tailored specifically for plant-touching companies, yet some banks offer cannabis-friendly services. Despite these hurdles, however, some banks offer cannabis-friendly services.
1. Know Your Limits
Cannabis business owners may find their banking options limited, forcing them to either deal exclusively in cash or use questionable tactics which could put their operations at risk.
Bank accounts and financial services don’t need to be difficult for anyone; here are a few tips to help navigate your journey successfully.
Before approaching banks, be prepared to provide in-depth documentation of your company’s operations – the more transparent, the better. Also, establish strong relationships with bankers early as this increases your odds of securing services more easily. Lastly, anticipate paying additional costs such as onboarding and monitoring fees; these may seem excessive; however, extra revenue generated can often more than make up for them and offer attractive return on investment for cannabis-friendly banks.
2. Know the Rules
Cannabis business owners should take steps to ensure they have all of the documentation needed for an easy application process. Compiling all this information early can save time and prevent delays during approval processes.
Banking industry regulations stipulate that it adhere to strict federal standards that prohibit money laundering and illicit finance activities, so financial institutions working with the cannabis industry must establish additional monitoring and appoint someone responsible for closely overseeing each account in their portfolios and reporting any suspicious activity to FinCEN (Financial Crimes Enforcement Network).
Cannabis businesses must avoid sudden account suspensions or closures to remain compliant with federal regulations, making the burdensome costs associated with financial relationships all the greater. It is therefore essential for cannabis businesses to provide sales verification from point-of-sale systems as part of compliance monitoring and filing to be ready.
3. Know Your Options
Cannabis businesses may attempt to conceal their affiliation with the industry, but FIs have become adept at identifying Cannabis Regulation Businesses (CRBs). Sooner or later, your bank is bound to discover you are involved with CRBs; it’s only a matter of when. Once found out, banks typically shut down accounts associated with CRBs while blacklisting anyone involved from opening future accounts with them.
This setback for the cannabis industry and entrepreneurs alike can impede access to credit and financial services from banks, forcing them to look elsewhere for financing such as private loan issuers or angel investors for accessing capital for expansion of their businesses. There are still banks which will work with cannabis-related businesses by providing banking and merchant services; these FIs often charge an additional compliance cost fee associated with banking marijuana-related businesses.
4. Know the Risks
As cannabis legalization spreads to more states, businesses are experiencing significant growth and require banking services for expansion. Unfortunately, federal prohibition still prohibits many financial institutions from working directly with this industry.
Cannabis-related businesses (CRBs) tend to operate on cash alone, leaving them susceptible to theft and other risks. Furthermore, CRBs may struggle with payroll processing and other business services and eventually needing to pay employees either by mail or pay in person which is costly and ineffective.
Companies looking to venture into the cannabis industry must abide by stringent FinCEN guidelines and conduct anti-money laundering/suspicious activity monitoring, in addition to working closely with legal and compliance subject matter experts to create programs suited for this environment. Furthermore, keeping abreast of changing legal and regulatory landscape is key for understanding risks associated with cannabis banking as well as determining if taking this opportunity makes financial sense for them.