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Cannabis Series: Banking for an "Unbankable" Industry

June 12, 2019 By Emma Smith - Leave a comment

marijuana cannabis bankingIf you’re in the cannabis industry and have yet to find a bank willing to partner with your operations, you aren’t alone. Thousands of distributors and growers are still operating on a cash-only basis, managing payroll, sales, and income taxes with little protection against theft, state compliance, and human error. This remains the industry standard by a significant margin, as 70% of cannabis businesses are still without bank accounts.

The persistence of marijuana’s federally outlawed status has led most banks to turn cannabis professionals away. Fearful of money laundering and illegal drug violations, most banks remain fixed- even in states that have legalized medical or recreational use. The result? A cash economy plagued by difficult compliance hoops, high turnover rates, and huge security risks.

But times are changing. As more and more state banks open their doors, now is the time to explore the options currently available to you, as well as those on the horizon.  

How Did We Get Here?

In 2014, the U.S. Department of Treasury cleared banks to work with cannabis businesses, provided they adhere to a series of guidelines. However, only 51 banks and credit unions were actually able to work with companies at that time. That number rose to 301 in 2016, but still represents less than 3 percent of the nation’s 11,954 banks and credit unions.

As of 2018, there were 375 banks and 111 credit unions servicing cannabis businesses, according to the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN). This past March, the U.S. House of Representatives took another major step towards passing the SAFE and STATES Acts to protect banks’ rights when adhering with a state law that conflicts with federal cannabis policy. Part two of this series will focus specifically on that legislation, but the important thing to note is that it would allow many banks to re-open doors they had previously shut to the cannabis industry in past decades.

What Is Available to your Business

Now that we have a little more context on where we currently stand, we can navigate the issue at hand: getting your marijuana business the financial security and management it deserves. You don’t want to risk getting your FDIC insurance revoked, so it’s critical to take each step deliberately and patiently.

Here are some things to keep in mind when looking to partner with a bank in the cannabis industry:

  • Take the time to identify credit unions and regional, state, or local banks that are available to accepting new cannabis-based accounts. It varies from state to state, but there are credit unions and regional banks that offer their services. Many have waiting lists, so you won’t want to wait.
  • Be transparent that you are a cannabis-related business and establish a relationship. Building trust over time can help your chances of securing an account and positive partnership.
  • Gather quality financial data to reinforce the legitimacy of your business. Banks need to benefit from your relationship as well, so present your situation as one that is organized and accountable.

Once you finally do get a bank account:

  • Prepare for long term freezes and other setbacks which may occur unexpectedly.
  • Expect routine, multi-tier audits that will review your bookwork, metrics and compliance.
  • In addition to vault fees, you'll want to factor in additional bank charges and transportation costs. It's been estimated to cost anywhere from $6,000 to $14,000 a month to bank your money.
  • Be mindful that some states only allow a handful of companies to legally transport cannabis cash. If this is the case, your bank might not accept it from anyone else! Whenever possible, clarify these details with your bank directly. 

EPAY Systems Can Help

Here at EPAY Systems, we are fearlessly taking on the cannabis industry with our full service, Human Capital Management (HCM) solution. It accommodates even the most complex and difficult payroll, compliance, and HR management needs. Not sure how if HCM would benefit your business? Check out our recent blog post “Cannabis Industry Meets Human Capital Management” to learn how the right software can optimize your administration, payroll, onboarding, and compliance needs effortlessly.

Utilizing a Human Capital Management solution lowers your liability and ultimately ensures that your compliance requirements and financial assets are secure without complications. Request a demonstration today!

Filed Under: Payroll & Tax, Cannabis