It is no secret that having reliable banking partners in the cannabis industry is difficult, however, the adage that cannabis banking access is near impossible is no longer the case. The majority of the cannabis industry is underbanked, but not unbanked. There are a limited number of financial institutions that are willing to open business banking accounts for plant-touching cannabis companies. These accounts, however, cost more than the traditional business account because they require more due diligence to obtain because of the risk and added compliance processes that the bank has to take on in managing these accounts. The financial institutions that do enter this space need to hire more anti-money laundering/know your customer (AML/KYC) and other compliance professionals to keep up with the currency transaction reports, suspicious activity reports (SAR), and other reporting and diligence requirements the bank needs to follow based on Financial Crime Enforcement Network’s (FinCEN) guidance.
At this point in time, it appears that the larger financial institutions have too much at stake to risk getting involved in the cannabis industry, so the majority of the financial institutions banking cannabis tend to be the smaller banks and credit unions that are more agile and willing to take the risk. Until there is a change at the federal level, such as the SAFE Banking Act passing the Senate or cannabis being removed from the Controlled Substances Act, most banks will stay on the sidelines.
Although plant-touching cannabis companies have options for banking, which solves the problem of safeguarding and storing large amounts of cash, this banking access does not solve the problem of being a cash-based business. Because the brand name card networks have stated they will not work with the cannabis industry unless there is a change at the federal level, businesses still rely on receiving payments from customers in cash, and using cash to pay vendors, state, and federal fees and taxes. However, innovative financial technology companies are stepping in to provide stop-gap solutions to address this problem until the brand name card networks are willing to work with the industry. Some of these solutions include bank to bank transfers and wires, automated clearing house (ACH), cashless ATMs, closed loop cryptocurrency solutions, and more.
Because cannabis is a highly regulated industry with challenging and ever-changing regulations and legislation at the federal, state, and local levels, it remains imperative that cannabis companies, and their financial institutions and payments companies stay compliant. Financial institutions have been doing enhanced due diligence, including site visits to on cannabis companies due to the regulatory risk that banks take on when working with a plant touching cannabis company. This includes making sure the cannabis company has appropriate licenses, state mandated seed to sale processes/technology, and more. If there is a compliance issue, a cannabis company risks losing a relationship with the financial institution, or worse face enforcement from one of the many regulatory bodies that govern it. The financial institution could also become exposed to liability at the local, state, and federal level depending on the compliance issue. Because the cannabis industry is so highly regulated and its laws are ever changing, the industry has spawned an entire new group of compliance companies that focus on the different aspects of the cannabis industry—from banking compliance, to lab testing, packaging, and more.
One place private companies and those working in government can work together to better understand banking in the cannabis industry and develop solutions to payment, banking, and compliance is at the The Avantpay Conference. It is the B2B conference for payments, banking, and compliance in the cannabis industry. Due to Covid-19, the Avantpay Conference could not happen this year as it did in 2019 where over 500 attendees with the support of more than 150 organizations heard from over 75 speakers but we are preparing for 2021. For more information about the Avantpay Conference currently scheduled for September 9-10, 2021 please visit our website.
Joshua Radbod is the Co-Founder and CEO of The Avantpay Conference. Joshua is also an Attorney at Cogent Law Group, LLP in Washington, D.C. where he provides regulatory compliance guidance to cannabis related companies and financial technology companies.
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