Navigating the financial intricacies of the cannabis industry is no simple feat. As a cannabis finance professional, I’ve seen firsthand the numerous unique challenges businesses and individuals confront in this sector.
Armed with this knowledge, I wanted to shed a little light on the complexities surrounding cannabis banking services and share some actionable insights to help streamline your banking experience.
The Hurdles of Cannabis Banking
The cannabis industry has experienced remarkable growth and evolution in recent years, but it continues to face big challenges when it comes to finding reliable and supportive banking services.
Because cannabis is still illegal at the federal level, this trickles down to create issues for state-legal cannabis businesses seeking financial services, such as:
Stigma and moral concerns: Decision makers at these banks are concerned that opening their doors to cannabis businesses will negatively impact their brand image and reputation, so they opt against it.
Risk aversion: Federal prohibition makes cannabis businesses high-risk clients for banks and credit unions, which are often concerned about the unknowns of serving the cannabis industry.
Compliance and regulatory burden: Banking cannabis businesses requires a substantial commitment to compliance. Financial institutions need staff dedicated to navigating the ever-evolving regulations, reporting requirements, and compliance challenges associated with cannabis banking.
Your Business Values
The reluctance of major banks to serve the cannabis industry makes finding the right financial institution critical. Here are a few recommendations for navigating this complex landscape:
Seek referrals: Word of mouth is a powerful tool. Accountants and lawyers with experience in the industry often have valuable contacts and can refer you to cannabis-friendly banks or credit unions. Talk to colleagues in the industry, search the web, and interview multiple financial institutions before making a decision.
Be cautious about “too good to be true” offers: If a financial institution offers unusually low fees or even no fees for cannabis banking, it might suggest they don’t fully grasp the specific challenges and nuances of banking within this industry. Low fees might also mean the institution is not invested for the long term and is only seeking a quick boost in deposits. Don’t solely focus on the cost; the cheapest option may not always be the best choice.
Consider credit unions: Credit unions are not-for-profit organizations that exist to serve their members. With a trustworthy infrastructure and mission, they prioritize member control, community involvement, and diversity, equity, and inclusion.
Get professional advice: It might be an additional expense, but consulting legal and accounting advisors can be well worth it. They can help you verify the stability of an institution and confirm its commitment to the cannabis industry. Is the institution involved in trade associations? Is it active in the industry on the regulatory or policy fronts?
What to Know When Opening a Cannabis Business Account
Opening a cannabis banking account involves more stringent compliance controls, longer timeframes, and more paperwork than opening a traditional account.
To make things smoother, get an understanding of what documents will be needed for opening your account. Expect to provide legal entity documents, signed agreements, formation documents, operating agreements, a business plan, credentials, and evidence of business acumen.
If any owner holds more than 25% ownership, some financial institutions may require you to fill out additional forms, just like a non-cannabis account would require.
Some personal vetting is also a standard practice because it protects both the client and the institution. But also know that while credit unions and banks may scrutinize your personal finances, it’s typically an issue only if there are major red flags.
Asking questions is always a good idea when navigating the world of cannabis banking. Here are some good examples of questions that inevitably come up (and should be addressed) when trying to understand how it all works.
Do financial institutions charge the same fees for cannabis businesses? No, pricing models can vary significantly. Some institutions offer flat monthly fees that cover all services, others have more of an a la carte selection. Some institutions charge a flat processing fee, while others only charge fees for what is used. The right choice for you depends on your business needs.
Does my business name matter? A strong brand name reinforces the perception of your business’s professionalism, which improves your chances of securing dependable financial services.
How many accounts will my business need? That depends on its size and complexity. Work with your CPA to determine the optimal setup.
Can I restrict access to my company’s accounts? For the best level of security, work with an institution that restricts access. You want to protect your business with the proper controls. Online models can provide confirmation and alerts to notify you of any activity to ensure transparency and security.
Cannabis banking can be challenging, but with the right knowledge and approach, businesses can find the financial services they need. Leverage the insights outlined above, ask the right questions, and remember to tap your trusted colleagues and other aligned professionals for referrals and guidance to find a trustworthy financial partner that can help your business thrive.
Brett Ballman is the first vice president of business services and consumer lending for Salal Credit Union. Brett has a diverse banking background starting his career as a federal bank regulator before transitioning to work for several community banks in various senior leadership capacities and in Global Operations for a Seattle based fintech company. He is a graduate of Western Washington University and Pacific Coast Banking School where he received honors.
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