Opinions expressed are solely those of the author and do not reflect the views of Rolling Stone editors or publishers.
Cannabis is one of the fastest-growing industries in America. In 2021, almost 10 percent of jobs in Missouri came from its legal cannabis industry, and that’s a medical-only program. Also in 2021, both Illinois and Massachusetts reported cannabis excise tax revenue exceeding that of alcohol for the first time. Yet, in a recent study by Whitney Economics, 72 percent of cannabis businesses polled responded that banking was their No. 1 concern — 72 percent, ahead of taxes. Why would such an industry be underbanked? Why is cannabis banking even a topic?
A bit of historical context might help. Not to state the obvious here, but cannabis is a Schedule 1 narcotic, and despite the fact that numerous states have passed some form of legalization measures, it remains federally illegal. Hence, every dollar from the industry passed through the financial system can technically be considered money laundering. For a bank or credit union, that was a no-go — period, end, full stop.
Then the Cole Memo came out (though was later rescinded), followed by the 2014 FinCEN guidelines. Slowly the industry started to experience growing acceptance by financial institutions. But the enterprising financial institution jumping in to fill this need will quickly find that the regulatory burden of banking the industry is very high, perhaps prohibitively high. Just to list a few examples:
1. The industry is cash-heavy, which is more burdensome (not to mention expensive) than most realize: transporting the cash, counting the cash and documenting the cash.
2. Due to its federal illegality, the acceptance of funds from the industry triggers certain required reporting by the financial institution. Since the deposit relationship is (hopefully) ongoing, these reports are being filed constantly, leading to a lot of extra work for the bank or credit union.
3. The FI has to monitor the account so closely that, in a fairly literal sense, it can account for every dollar of deposit. There are some other nuances, but you get the idea: It can be a lot of work, much more so than as compared to almost any other industry.
In the early days, this led to a lot of FIs jumping in and then jumping back out. It also made for some very expensive banking; I’ve seen fees hitting upwards of $10,000-plus a month just for a basic checking account. But with the marketplace changing, acceptance of cannabis businesses by banks and credit unions has started to accelerate.
Despite this, cannabis banking still seems to be top of mind for cannabis leaders and entrepreneurs. The very real challenges the cannabis industry faces when trying to access financial services have led to a misconception that cannabis-related businesses (CRBs) simply can’t get bank accounts. While it’s true that many FIs aren’t yet ready to bank the industry, a growing number of banks and credit unions are. The likelihood, though, is that you won’t be able to simply run a Google search for a list.
With very few exceptions, FIs are typically discreet about their cannabis banking programs, and you likely won’t find them issuing press releases or advertising these programs on their websites — though recently that has started to change with several institutions being very public about their programs. Reach out to lawyers, accountants and bookkeepers in your area. If they are representing or working with other local CRBs, they may well know who they’re banking with or know someone who does. You should also consider reaching out to FIs directly even if you don’t know whether they’re working with CRBs. You might be surprised to find out they do, and if not, they may redirect you to another FI in the area.
Don’t waste your time reaching out to the big national banks. Yes, you may have a friend who’s actively banking with one of them, but those are usually exceptions to the rule that are likely unsustainable. Once one of these banks finds out the true nature of their businesses, they could “derisk” them — FI code for “close the account.” Look instead for credit unions, community banks and regional banks. There’s a myth out there that only local credit unions can bank cannabis, but that’s not the case. Additionally, for a CRB, the difference between the organizational structures of banks and credit unions isn’t nearly as important as what products and services they’re willing to offer.
The pioneering FIs that first took on the risk of banking the industry were exceedingly cautious, and it was relatively unusual for them to offer a CRB more than a standard small business depository account, i.e., a place to store cash but little else. However, we’re moving into a new phase of cannabis banking where we’re seeing financial institutions offer more than just a place to park cash. Some are starting to offer loans, payroll services, business insurance, etc., so it’s worth looking around to see what’s available out there. You might find the new range of services surprising and comparable to business services for non-cannabis businesses.
Today, the industry is largely “banked,” in that businesses have accounts somewhere, employees are getting paychecks and direct deposits now, instead of cash, bills are paid by checks or electronic means, etc. But it is rather underbanked, in terms of capability, capacity and cost. But, that’s a topic for another article.