Banking for cannabis businesses is a topic surrounded with misinformation and myth.
In this post, you'll learn everything you need to know about banking as a legal cannabis business, including why you need a bank account, where to find participating banks, and how to open your first account.
Cannabis companies can have a bank account
There are many myths around cannabis banking services, but here’s the reality:
Dispensaries can have bank accounts. You can deposit money in the bank. You can pay bills electronically. It just looks a bit differently than other industries.
According to Dan Roda, CEO at Abaca, “The industry is not unbanked, but it is underbanked.” Many attribute this to the fact that cannabis is federally illegal, but the federal government actually allows serving the cannabis industry.
“In reality, the US Treasury issued regulatory guidance in 2014 that instructs banks on how to serve the cannabis industry. I’ll spare you the details, but it boils down to a heavy compliance burden, which can be expensive or otherwise impractical for many banks to meet,” says Roda.
The federal government treats cannabis similarly to other high-risk industries — gambling, firearms, and adult entertainment.
Why dispensaries need a bank account
The benefits of banking are self-explanatory, but there’s also heavy risk associated with not having a bank account.
Theft — Managing large amounts of cash onsite makes marijuana dispensaries a target for criminals. This creates a risk not only for the business owner, but the facilities, staff, and brand reputation.
Cost — Dispensary owners have to build stronger security systems and employ guards to keep their assets, products, and cash reserves safe. And don’t forget about the time cost of counting, logging, packaging, storing, and transporting that paper money.
Efficiency — Banking allows you to pay and be paid faster than with cash. There’s operational efficiency that comes with electronic banking. This will also keep your accounting and bookkeeping much tidier, which is ideal for legal, tax, and compliance reasons.
Accept non-cash payments — To use a point of banking solution, you have to have a bank account at a bank that allows you to accept ACH payments.
Future planning — To qualify for lending, find investors, or sell your business, you’ll need to be able to prove how much your business makes. Operating in cash makes that hard to prove.
Cannabis related businesses (CRB) spend far too much time and effort transforming cash into something they can use to pay utility bills, their suppliers, etc.Paul Dunford, Cofounder at Green Check Verified
Banks that serve the cannabis industry
The easier place to start is with where you can’t bank: Currently no major banking system will service the marijuana industry.
That means you’ll have to get an account from a smaller institution, like community banks and credit unions.
Compared to traditional banking, you can expect more strict compliance controls, longer timeframes, and significantly more paperwork. Companies and consultancies can help business owners find and apply for accounts with their bank partners.
According to Dunford from Green Check Verified, “There are [financial institutions] out there that are banking cannabis. They’ve usually made that decision based on a number of factors, from a commitment to serving the unbanked or small businesses in their communities to those that see a revenue opportunity associated. It’s not going to be the big national players — they don’t see how the reward would outweigh the risk when the opportunity presented by cannabis banking would be miniscule to their overall portfolio.”
The challenge is finding the banks that work with dispensaries. Many aren’t explicit about their support of mariijuana businesses. Ask other dispensary owners, accountants, or lawyers in your area what banks they use.
Be careful with newer cannabis-friendly banks. Roda has seen banks enter the space only to realize the compliance requirements aren’t worth it and shut down the program. Look for established financial institutions who have been serving cannabis for a while.
How to open a dispensary bank account
Once you have a short list of local banks, talk to each of them. Include these steps during your vetting process:
Be up front that you’re a legal marijuana business and ask if the bank would like to support you.
Assess them based on relationship and customer service.
Read the fine print. Make sure your account doesn’t have capacity restrictions, or limits on how much you can deposit or hold.
Consider the cost. Dunford encourages resisting the temptation to focus on the monthly account maintenance fees. Look at the additional fees like wires, payroll, checks, debit cards, access to online banking, etc. that could quickly add up.
Once you’ve decided on your bank, the process of opening accounts is generally the same as you’ve done personally or for other businesses, but will require more time and paperwork.
Here are some tips for opening your dispensary bank account:
“Be thoughtful in naming your entity — don’t misrepresent the nature of your business, but also don’t create unwanted attention,” says Roda. This means avoiding words like Bud, Green, High, Grass, Wellness, Extracts, Smoke, Joint, 420, MMJ, CBD, Cannabis, Dispensary, Provisioning, etc. in your legal business name. If you really want to use one of these terms, talk to your lawyer about setting up a DBA (Doing Business As) for your store name.
Compile your business documents, like operating agreement or bylaws to establish ownership, and decide who your bank signatories will be. You’ll also want to document your sources of business funds, and have a certificate of good standing. Your bank will tell you what other documents you’ll need to provide.
Your bank may require a physical site visit/inspection. This is normal and nothing to be concerned about.
Financial services providers must adhere to regulations around anti-money laundering. This means you’ll need to be able to demonstrate that every dollar going into your account is from a state-legal sale, using reports from your POS to how customers weren’t sold over the purchase limit, they were of age, and that your total sales were in line with your competitors.
Always be honest and transparent with your bank.
If you open a bank account but don’t indicate that you’re in cannabis, inevitably the bank is going to find out and shut down your account. No matter how hard you try to conceal the nature of your business, sooner or later something is going to raise a red flag, whether it’s a check from a suspiciously named company or too many cash deposits.Eric Kaufman, Chief Revenue Officer at Dama
Once your accounts are open, maintain ongoing communication with your bank to make sure they have what they need to keep your account in good standing. You may have account-specific requirements as well.
For example, Dama Financial requires that you transact monthly, keep a minimum balance, and maintain current business documents.
Can dispensaries get loans/other banking?
Simple banking is one thing, but more sophisticated financial services for marijuana-related businesses is another.
Financial technology companies, specifically serving the cannabis industry, are popping up around the country, ready to solve the cannabis business problem, including lending, payment processing, payroll, invoicing, and paying taxes.
Giving out loans to cannabis businesses is still new because it adds risk.
“To control risk, they may require you to have a bank account with them before they’ll be willing to lend so that they know you have the funds available to do so,” says Dunfold. “You’ll also have to think about what you can offer as collateral because the most valuable asset of your business might be marijuana, and that’s not something that a financial institution can repossess should you default on your loan. CRBs often have to collateralize the personal property (homes, cars) of their owners if there’s no machinery or other non-marijuana-specific assets available.”
Roda is seeing an industry shift here though.
With every year that passes, we see more and more financial services opening up to the cannabis industry — lending, payroll, insurance, and more. Even with the same enhanced compliance requirements, it’s exciting to see cannabis businesses begin to have more conventional sources of financing and other financial tools available.Dan Roda, CEO at Abaca
The impact of the SAFE Banking Act
The SAFE (Secure and Fair Enforcement) Banking Act has been sitting with the federal government for years, passing through the House five times in eight years, but stalling with lawmakers in the Senate each time.
Note: Many are excited about the prospect of federal legalization, but that won’t solve our banking issues.
If the bill gets signed at the federal level, this is what to expect:
More financial institutions will experiment with servicing the cannabis industry.
Local relationships will still matter.
Big banks still won’t be accessible (just as they still don’t serve many other high-risk industries).
The strict compliance requirements will remain.
Cannabis banking will start to normalize and financial institutions will be more open about working with cannabis businesses.
Other traditional financial services products will become available to cannabis business owners.
Ready to get started with a bank account for your adult use or medical marijuana dispensary? Find reputable cannabis banking partners.