Cannabis Banking: Struggle of Cannabis Businesses with Banking

In the cannabis industry, access to cannabis banking services seems impossible. For suppliers, vendors, retailers, or anyone else who deals with this business, bank options are relatively minimal. Do you know the reason behind this?

The reason behind this is The Controlled Substances Act. This bill was passed in 1970, which stated that marijuana or cannabis is a Schedule 1 drug. That means cannabis is placed alongside other drugs such as LSD, meth, and heroin. Consequently, the sale of marijuana or cannabis products is illegal under federal law. This creates a barrier for dispensaries or stores to make a legal marijuana or cannabis banking process.

Moreover, financial institutions and credit unions are hesitant to offer banking services. This is because of the position of cannabis-related businesses in a legal “gray area.”

Current Status of Cannabis Banking

The legal gray area was not always a problem. It was not until 2013 when the Departments of Justice released a memorandum called the Cole Memos. This memorandum declared that the federal government would not impose any ban on the sale of cannabis products. Instead, it trusted the states to implement their own regulatory systems for legal marijuana.

However, five years later, the US government canceled Cole Memos. This created doubts about how law enforcement would react to the cannabis industry.

However, just five years later, the government rescinded the Cole Memos. This left uncertainty around how law enforcement would respond to the marijuana industry. As a result, criminal prosecutions were applied to banks that collaborated with cannabis-related businesses, even stores with state-issued licenses.

For cannabis dispensaries or stores that get help from financial institutions or banks, compliance remains a huge problem. Even with a bank account, there are several regulatory and legal boundaries to pass through. For instance, both cannabis businesses and banks must ensure that all sales are permitted to avoid any issue later.

Costs Related to the Cannabis Industry

Being associated with the marijuana business is expensive for all parties involved. Cannabis businesses have to pay higher merchant account charges, and financial organizations must have to use their assets to put together all the data. The burden of additional expenses for merchants and banks is shifting to consumers, making cannabis purchases at stores complicated and more expensive.

Besides the associated costs, cannabis banking procedures are not efficient because banks or financial institutions still risk litigation. The marijuana industry doesn’t function differently from the rest of the economy. They communicate like any other offline business; pay utilities, lease space, and do business with transporters, vendors, and suppliers. The process is similar to any other company in the market.

Also, the increased liability makes banks anxious to collaborate with cannabis businesses, leaving them to cover their costs themselves. Consequently, most marijuana dispensaries are not getting the banks’ support and operating as a cash business, which is a dangerous and expensive choice.

The Frustration of Merchants and Banks

The lack of cannabis banking choices has brought frustrations among merchants as well as banks. For a cannabis business owner, this is undoubtedly expensive. They need to improve their security to protect business cash. Also, managing regular expenses, such as rent, tax, and payroll, is challenging with money alone. On the other hand, financial institutions and banks have to fulfill many responsibilities to ensure no federal law violation.

As a result, banks are avoiding offering cannabis baking services to cannabis-related businesses. Overall, until the legalization of marijuana or cannabis banking, communities, banks, financial institutions, and companies have to pay the price of inaction, which affects all aspects of the marijuana industry.

Legalization of Cannabis Banking

Though it seems impossible, if cannabis banking becomes legal, it would be ideal for both banks and cannabis-related businesses. It will regulate easier, safer, and better business practices. Banks would deliver their services to more and more cannabis merchants without prosecution or any fear. The legalization of cannabis banking services would also help in combating illegal payments.

Also, with the reduction of additional charges (no security expenses and all), it’s predictable that cannabis businesses will make more profits. Also, the approval of cannabis banking for the marijuana industry would lead to a lower crime rate in communities.

The Bottom Line

The question is not whether or not marijuana or cannabis banking services can be legal in the community. It’s the financial sector overcoming the marijuana industry’s stereotype that seems to be a huge barrier that is holding back marijuana banking from improving beyond cash-only business.