Over the last decade, the cannabis industry continued to grow in several new markets — as medical marijuana (MMJ) became legal in more than two-thirds of all states. But at the federal level, most cannabis products remain illegal.
For entrepreneurs entering this industry, securing funds and managing capital assets is a significant struggle. In the past, these hurdles have prevented many businesses from entering the market. But new service providers now offer solutions to businesses in high-risk industries. Such developments have been a major factor in the cannabis industry’s growth over the past decade.
Traditional Challenges of Cannabis Banking
Traditional banking services are largely inaccessible to cannabis businesses. That is because cannabis is still considered a Schedule I substance under federal law. By working with marijuana retailers, banks expose themselves to prosecution.
Finding a bank to work with is made even more difficult by the banks’ lack of transparency. If banks are willing to work with cannabis brands, they rarely advertise this. Whether for fear of legal ramifications or public perception, openly helping cannabis businesses might polarize the banks’ other customers.
Estimates of the number of banks that work with cannabis industry players are low. As of 2021, FINCANN had reported that there were 212 industry-friendly banks in the United States.
This figure, however, represents all sectors of the market — CBD, marijuana, hemp, and THC. Note that this does not include banks that silently partner with cannabis brands.
However, marijuana retailers, growers, distributors, and other cannabis businesses still need the same services and tools for managing their cash flows as standard companies. In fact, they may need these resources more so than other brands that primarily process electronic card payments.
Cannabis Banking Compliance
There are a variety of factors that go into cannabis banking compliance with federal financial institutions. Any banks considering working with these businesses have to consider these factors carefully before taking them on as clients.
- Money management: Any bank is going to want to know how the business currently manages its assets. As many cannabis retailers work on a cash-only basis, it’s important that they have thorough records of all transactions, tax payments, and business expenses.
- Financial reporting: Businesses must be aware of any and all reports that they must file and submit for review. To remain in compliance, they must make sure to hit all required deadlines (both financial and legal).
- Employees: Hiring the right employees is crucial for compliance. To get approved for retail permits, businesses have to submit their employees for background checks. If even one employee is not cleared, this can jeopardize the entire business before it even opens.
To follow all of the cannabis industry regulations, these businesses have to be organized and methodical in how they run their operation. If so, they are more likely to secure funding, permits, and help from banks — all of which are crucial to continued success.
Cannabis Banking Solutions
In order to remain in compliance with financial regulations, dispensaries must solicit specialized cannabis banking solutions. There is now an entire banking industry for businesses that grow, sell, or deliver cannabis products.
You may consider trying to work with a traditional bank before moving on to a specialist. If so, here are some tips for increasing your chances of securing conventional services:
- Review the types of businesses eligible for an account with the bank on their website ahead of visiting a branch, if possible.
- Be as transparent as possible about your business model, cash flows, and practices.
- Talk to a banker in person.
- Provide comprehensive documentation of all existing financial records.
- Seek out help from local banks (as opposed to large national banks).
However, if you decide to pursue specialized cannabis banking solutions, you will have many options to choose from.
- Debit Processing: Processing standard card payments is difficult for cannabis businesses. With this dispensary solution, customers swipe their debit cards and enter a PIN number just like they would in a regular transaction. The cashier then types in the transaction total in an increment of $5 or $10. Then, the customer authorizes a convenience fee and the cashier returns any cashback that’s due. This eliminates the need for merchants to process cash at all.
- Contactless Payment: This is a secure way to accept and process electronic payments. Customers can pay for products via an app or online portal where they create an account and release funds directly from their bank account. With this model, you will not have to manage any cash.
- eChecks: Electronic checks are processed the exact same way as standard checks, but the process takes place entirely online. Like signing a check, customers authorize funds to be released to the cannabis business. Then, the business enters the transaction amount and the transaction is approved for transfer.
- Cannabis Banking: Businesses can now work directly with cannabis-only banking partners. These partners can help entrepreneurs secure cash, set up bank accounts, provide traditional debit card transactions, manage bank statements, and operate within compliance.
From getting all of the necessary permits, building a customer base, and curating the right products; cannabis dispensaries have many more barriers to entry than other types of businesses. Setting up a payment and banking system for your assets is one of the most difficult obstacles of all. Luckily, the growing market of cannabis banking solutions now offers more options than ever to turn your dream into a reality.