Cannabis businesses face many myths and urban legends that pose major barriers for doing business.
Financial institutions that wish to maintain lower risks and comply with anti-money laundering regulations need a better understanding of banking myths and realities. Here are five of the most prevalent myths:
1. Banks Are Unwilling to Serve Cannabis Businesses
While federal prohibition has prohibited banks from engaging with cannabis businesses directly, local and regional banks have found ways to do business with this industry. According to FinCen, more than 125 financial institutions provide services for marijuana-related business (CRBs).
Banks and credit unions should conduct rigorous customer due diligence when banking Community Reinvestment Banks. Furthermore, they should perform transaction monitoring specifically designed to identify any risk related to CRBs while making sure their anti-money laundering programs comply with Cole Memo priorities and state law requirements.
Time and resources may be essential to building a cannabis startup business; unfortunately, many entrepreneurs lack enough funds for this task alone and must rely on private investors or alternative funding sources until their startup capital allows for this expense.
2. Cannabis Businesses Are Unbanked
Cannabis operatorss have difficulty accessing deposit banking services. Even with the SAFE Banking Act in place, access is sometimes difficult. Banks and credit unions may close accounts if they discover cannabis-related activity that was not disclosed on their application – this could be as a result of federal/state regulations like Patriot Act as well as their internal compliance guidance – although some banks and credit unions have partnered with technology companies in order to meet these regulatory demands more easily.
Compliance with regulatory guidance and risk mitigation can be achieved this way, yet this does not offer businesses access to all the financial services needed for expansion of their businesses. A recent Whitney Economics survey indicated that banking was of top concern among cannabis businesses – even ahead of taxes!
3. Cannabis Businesses Are Expensive to Bank
Access to banking can have a direct impact on a cannabis business’ ability to pay its bills, serve customers and employees, grow its operations, compete in the hiring market and retain talent. Furthermore, businesses must incur extra operational costs as they must invest in expensive anti-money laundering software, external auditors and legal advice in order to comply with law.
Reluctance towards cannabis companies often stems from misinformation and misconceptions. For example, many believe there are hundreds of banks serving cannabis. This number comes from FinCEN filings of SAR (Suspicious Activity Reports), in which banks must report suspicious activities; some file SARs just to stay safe – even when they have no cannabis clients!
4. Cannabis Businesses Are Not Transparent
As with any industry that operates within an uncertain legal landscape, green industry companies must take extra precaution in regards to financial transactions. Stringent data protection standards can help preserve their brands and preserve reputations.
Banks have increasingly moved away from cannabis clients out of fear of legal retaliation; however, most remain open to working with CRBs provided their electronic payment solutions are fully transparent in order to mitigate risk and comply with FinCEN regulations. Achieve this level of transparency can be accomplished through working with an established partner who is committed to investing both time and effort for compliance with FinCEN requirements.
5. Cannabis Businesses Are Not Efficient
Images of bank heist movies featuring bank robbers opening bags full of stolen cash and stamping it with indelible ink have given way to images of marijuana-related businesses (CRBs) struggling to find banks that will work with them, when in reality hundreds of banks have already been working with cannabis clients for years; these banks must abide by FinCEN guidance and conduct customer due diligence according to a roadmap provided by the U.S. Treasury back in 2014.
Dispelling common misconceptions surrounding cannabis banking is key to providing cannabis and CBD/hemp companies with access to banking and financial services necessary for growth, and one step toward this end can be taken via legislation such as the SAFE Banking Act being considered in Congress at this time.