Banking for Cannabis Growers

If you own a cannabis business, a major consideration is where to keep your money. Though many business owners may find banking to be a headache regardless of industry, few business owners have more hurdles to deal with than cannabis growers and dispensaries. The current state of cannabis banking can have a significant impact on where cannabis business owners keep their money and whether they obtain cannabis loans.

With the curious legal status of cannabis at the federal and state level, cannabis banking can be complex. This is where a trusted cannabis lawyer at Harris Sliwoski can help.

Current State of Cannabis Banking

Currently, many states have legalized cannabis for medical use and some have legalized it for recreational use, but cannabis remains illegal at the federal level. Since the legality of cannabis varies at the state and federal levels, this has led to a lot of uncertainty in cannabis banking. While the industry is thriving because cannabis can be sold legally in various states, some financial institutions — including big banks — are hesitant to approve cannabis-related business accounts due to the federally illegal status of cannabis.

Financial institutions are concerned about facing repercussions from the federal government, which has forced many cannabis businesses into a cash-based economy. Without the ability to easily obtain reliable banking services while dealing with piles of cash, many cannabis businesses face increased security risks. When a business deals only in cash, it tends to be at a greater risk of robbery. This situation has elevated so much, in fact, that many dispensaries are hiring security guards and armored trucks to protect their money, and some have installed high-tech glass and security systems.

Cash businesses like those in the cannabis industry are also more often exploited for nefarious purposes like money laundering. Making tax payments can also be more challenging in a cash-only system. While it’s possible to pay taxes in cash, it’s less convenient. Fortunately, a burgeoning reform effort is gradually addressing the prohibition of cannabis at the federal level.

The SAFE Banking Act, for example, aims to prevent federal institutions from being penalized by federal banking regulators for associating with legitimate cannabis-related businesses. However, this act has failed to pass through Congress after several attempts, and under the current legal landscape, many banks and credit unions are continuing to stay away from cannabis-related businesses. Hemp, a similar product to cannabis, and hemp-derived consumer products that contain cannabidiol (CBD) are legal at the federal level, which could mean good things for cannabis, though there are still some legal restrictions on CBD products.

Tips on Banking for Cannabis Companies

Though there are no guarantees that you’ll be able to open a bank account for your cannabis business, you may be able to improve your odds of approval using the tips below:

• Be honest: Be honest and transparent about your cannabis business. Misleading a financial institution can lead to account closure and even present a risk of fraud. A bank will perform due diligence, so we recommend disclosing your important information upfront. A past bankruptcy, for example, may affect the risk you present to the lender for loans. However, certain institutions may still allow you to open a bank account.
• Consider fees: High-risk bank accounts tend to come with fees like monthly account maintenance, online banking, payroll and wires.
• Review the fine print: Before you open an account with a bank, you should review the fine print so you know the capacity and limits relevant to your cannabis business account.
• Gather documentation: Collect all of the documentation you’ll need, such as your permits, licenses, inventory logs, property deeds, sales records and Employer Identification Number (EIN). A financial institution will want to know the amount of money that may flow into the account, and they will want to review the source of your funds to avoid risking federal prosecution.
• Maintain solid recordkeeping: Your recordkeeping needs to be precise and accurate. Track your inventory from the moment you place the order to the moment you sell the product. An added benefit of maintaining solid recordkeeping is that you’ll keep your business running smoother and identify any increases or drops in demand.
• Brand your business carefully: Brand your business carefully, as your branding and your general reputation can affect your odds of opening a bank account. For example, avoid making direct references to cannabis in your business name, as this can grab a federal regulator’s attention. Make sure your website and social media accounts also demonstrate that your business is reputable.
• Comply with state regulations: To operate legally, review and comply with state regulations, as the state is the entity that considers your cannabis business legal. In some states, your financial institution may request an on-site visit before approving your new bank account. Ensure you are maintaining state compliance to increase your chances of approval.
• Establish a paper trail for funding: Every business needs initial funding to pay for equipment, staff and property. You should establish a paper trail that shows where the money came from, such as whether it was crowdfunded or borrowed from a particular person or source. If you make large deposits, you should also be able to show where these funds came from, such as in-store or online sales.
• Find an experienced cannabis lawyer: A lawyer experienced in the cannabis industry can provide you with the guidance and legal support you need.

Banks That Accept Cannabis Businesses

While many larger banks are avoiding cannabis businesses, small banks are entering the space. The number of state-chartered banks and credit unions that have been venturing into the industry is rapidly increasing, creating more competition for cannabis businesses seeking bank accounts. These banks know that cannabis businesses have an attractive financial profile, and many owners of these businesses are high-net-worth individuals and entrepreneurs who have been successful in other areas.

Though some small banks are not advertising their participation, the recent growth may indicate that stigmas surrounding cannabis business may be starting to fade. We recommend looking for a bank or credit union that has experience in dealing with high-risk businesses.

When to Reach Out for Legal Advice

At Harris Sliwoski, we offer specialized legal help to businesses like yours. Our services for cannabis businesses include legal planning, corporate guidance, compliance strategies and regulatory support. We’ve been assisting cannabis businesses in navigating rapidly evolving policies and regulations since 2010. Depending on your needs, we can also help with:

We take on big international commercial litigation matters on a mixed fee basis — part hourly, part contingency. Contact us at Harris Sliwoski to learn more about cannabis banking.