You’d think, considering the profitable nature of the cannabis industry, that banking would be simple. After all, shouldn’t banks want millions deposited in their accounts daily from a cannabis-related business?
Yes and no. Sure, major financial institutions would dearly love to bank your profits. However, because cannabis remains illegal at the federal level, these institutions will not risk opening their services to cannabis-related businesses.
Nor has the federal government made things any easier. Under the Cole memorandum, federal regulators agreed to turn a blind eye to legitimate cannabis-related businesses. However, policy changes meant this wasn’t a legal guarantee, further dissuading traditional banks.
Given the nature of the industry, it’s led many to ask: “Are cannabis businesses forced to be cash-only?”
Indeed, with limited available options, an estimated 70% of cannabis-related businesses resort to being 100% cash-run. Yet, the government still collects billions in taxes from legal cannabis companies, leading to excessive cash payments. The IRS even contacted an outside vendor to assist with processing large cash payments from the cannabis industry.
In this article, we’re exploring how we got into this situation, what the banking options are for cannabis businesses, and upcoming potential changes to federal legislation.
After states began legalizing cannabis sales, it led to a significant legal discrepancy. Businesses were legally allowed to open and operate – at a state level – but remained illegal at the federal level. By and large, law enforcement agencies turned a blind eye to the problem.
However, in the highly regulated financial sector, the potential risk of serving a cannabis-related business was deemed too great. For almost all the institutions, cannabis-related businesses were barred. It’s not just the federal prohibition. Even if banks choose to cater to the cannabis industry, the levels of internal compliance make the practice unviable.
The result is simple: customers pay cash, employees are paid in cash, and taxes are paid in cash.
As evermore businesses choose to go solely for digital payments, the cannabis industry finds itself swimming against the tide.
Worse, the IRS previously penalized legal marijuana businesses 10% if they paid their taxes in cash. But, after a business sued them, the policy was thankfully reversed.
Being cash only isn’t solely about the inconvenience – it’s also dangerous. Dispensaries are widely known for holding large stores of cash on-site, leading to an uptick in armed robberies.
In Colorado, a security guard was killed in 2016, and another guard in San Bernardino was wounded. Most devastating, a former marine was shot dead at the Green Heart dispensary in Aurora after starting his new job. He left behind a wife and three children.
These cases are unavoidable, inevitable, and yet preventable. It’s led to increasing pressure to reform the cannabis banking laws, opening up the banking options for affected businesses.
In one case in Oakland, a dispensary relied on going to multiple post offices to buy money orders. With each post office having a daily dollar limit on money order purchases, this became a laborious process for the business owner.
However, while the cannabis industry is chronically underbanked, banking options are still available. Nor is the industry as starved of banking as it was five or ten years ago.
With major financial institutions vacating the sector, smaller, local banks, like Safe Harbor, have stepped up. These newer cannabis-friendly banks often struggle due to the heavy compliance burden. Nevertheless, several notable institutions now serve their communities and are expanding their reach nationwide.
Safe Harbor is one such financial institution.
After tackling underbanking in Denver, CO, we’re now expanding our operation nationwide, doing everything we can to ensure your funds are banked. Previously, businesses had to either go cash-only, misrepresent their business to open an account or rely on disreputable and unreliable banks with no relevant regulatory expertise.
With over seven years of industry experience, we’re one of the few banks with the expertise, range of services, and track record of serving cannabis-related businesses. Much more is still needed, however – the legislation has to change.
Lawmakers in Washington, DC, are painfully aware of how crippling underbanking is to the cannabis industry. Yet, under the Bank Secrecy Act (BSA), financial institutions must report and investigate any suspicious behavior emanating from an account – especially if linked to illegal activity. That includes all transactions made illegal by the federal Controlled Substances Act (CSA), i.e., the entire marijuana industry.
The SAFE Banking Act is a proposed remedy to this situation. If passed, it would “ensur[e] access to financial services to cannabis-related legitimate businesses and service providers.”
Essentially, the bill prevents federal regulators and authorities from treating cannabis-related businesses differently from any other business. Doing so would give the green light to major financial institutions, solving the underbanking crisis.
It’s not the only legislative effort; other potential legal changes include:
With numerous legislative challenges, it’s only a matter of time before cannabis banking is widely available. Until then, however, thousands of businesses must struggle with inadequate financial services.
You need a financial institution with impeccable regulatory compliance and bespoke financial services – that’s Safe Harbor. Contact our team to explore our banking options and why we’re best placed to help your business grow.
Do you own a hemp, CBD, dispensary, marijuana, or cannabis business and need a business bank account? We’ve validated over $8 billion dollars in cannabis-related funds since 2015. Bank with confidence. Bank with Safe Harbor Financial today.
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