As the cannabis industry expands state by state, so too has its need for banking services – but stigma surrounding marijuana still prevents many financial professionals from offering their expertise to marijuana businesses.
Sundie Seefried stands out as an exception: She founded an FI dedicated to serving the cannabis industry.
Investing
As New York’s legal cannabis market expands, companies are creating products showcasing rare cannabinoid varieties while conducting clinical trials. Women like Brie Emerson, COO and co-owner of Level, are taking a leading role in cannabis research.
Even as more states legalize medical and recreational marijuana use, federal law remains the guiding force in the industry, making cash payments illegal and creating risks for banks that work with state-legal marijuana operations. Prosecution for money laundering poses another barrier if funds can be linked back to cannabis businesses.
Congressional lawmakers are working hard to change this reality. One bill called the SAFE Banking Act would prevent federal regulators from punishing financial institutions that work with state-legal marijuana businesses; it has passed both Houses but stalled in the Senate. Banks have also devised their own solutions: some have introduced programs designed to assist weed companies without fear of prosecution and allow debit card use.
Financing
As many marijuana-related businesses (MRBs) primarily operate using cash, it can be challenging for these businesses to secure banking services. But should federal legislation change and pass the SAFE Act (Secure and Fair Enforcement Banking), this could open the doors for these firms to access traditional bank loans as well as other financial products.
There are only a handful of banks willing to provide banking services to MRBs; those willing to do so, can build strong relationships that extend far beyond basic depositary services and deposit insurance, offering lending options as well as advisory services that tap their knowledge of this emerging industry.
Stealth approaches may include quietly accepting direct cannabis deposits while setting up a program that outlines that any indirect accounts tied to the industry – like electricians, accountants and landlords – but not those directly related to cannabis can be banked through indirect accounts tied to indirect accounts connected with it – could provide another means of evading regulatory scrutiny while satisfying examiners if policies, monitoring and reporting practices are in place.
Accounting
Financial forecasting plays an essential part in helping cannabis businesses optimize their cash flow management and mitigate risk in this highly-regulated industry. Financial forecasting helps predict cash inflows and outflows to enable sound capital investments as well as decrease insolvency risks.
Treasury Management processes are critical to effectively overseeing working capital, an essential factor of business profitability. This may include setting up credit lines, providing consistent and accurate month-end reporting and using cash management software for more effective fund sourcing.
Abaca offers banking, payments and treasury management directly to cannabis industry firms through partnerships with FDIC-insured financial institutions. Abaca provides services including ACH/wire transfer, armored cash pick-up services, high yield savings/money market accounts with guaranteed yields/escrow services/escrow agreements as well as relationship banking/deposit account control agreements designed specifically to meet their unique needs and industry regulations.
Taxes
Cannabis business owners face complex federal and state taxes as they cultivate, transport, sell and consume their product. Due to this financial strain combined with Schedule 1 status of controlled substances, it may be more challenging for cannabis businesses to secure banking services.
Financial institutions willing to provide banking services for cannabis companies must dedicate significant resources and time in compliance. Monitoring cannabis customers’ activity while managing potential risk issues requires dedicated time and resources, which may result in higher fees for those banking with traditional institutions.
New technologies can reduce costs while streamlining and automating compliance processes, including customer applications, account underwriting and risk evaluation. By investing in cannabis programs for financial institutions, revenue growth opportunities will emerge through diversification, revenue diversification and strategic differentiation opportunities; additionally increasing low-cost deposits can bolster long-term profitability while protecting against future economic cycles.