Cannabis-Related Businesses Can Have a Bank Account
Many dispensaries and marijuana businesses wonder if they can have a bank account. The simple answer is yes, they can! It just looks different than other industries.
The adult use and medical marijuana industry continues to be one of the fastest-growing American industries. Yet cannabis banking remains a rather complex topic riddled with myths and misinformation. It’s important to understand that even though federal law still currently classifies marijuana as a Schedule 1 substance, many banks and other financial institutions can work with legal cannabis businesses. Don’t let the heavy compliance scare you! There are many reasons why using a bank is beneficial and safer.
The Safe Banking Act
Paving the way for banks and insurance companies to serve state-legal Marijuana growers, processors, transporters, and sellers (sometimes called “Marijuana-Related Businesses” or “MRBs”) without fear of federal reprisal, on September 25, 2019, the United House of Representatives passed the “Secure and Fair Enforcement Banking Act of 2019” (“SAFE Banking Act”), a bipartisan bill seeking to align federal and state “banking services access” laws by prohibiting federal banking regulators from penalizing banks servicing MRBs. It aims to protect institutions that work with cannabis-related companies, providing them with a safer, more reliable system for conducting business.
Despite being passed by the U.S. House of Representatives multiple times, the legislation has yet to be approved by the Senate. This delay continues to leave cannabis businesses without broad access to banking, keeping many reliant on cash transactions, which pose security risks and logistical challenges for the industry.
Additional state cannabis laws can help legitimize and regulate the industry, providing numerous benefits even if still illegal under federal law. By allowing cannabis businesses to operate legally under state regulations, these laws create opportunities for tax revenue generation, job creation, and improved public safety.
When Your Bank Says “No” To Cannabis
Many people take it for granted: the ability to open up financial accounts easily. In most cases, all you have to do is go to your chosen financial institution and fill out paperwork, and you can easily and safely manage your money. But dispensary owners know traditional big banks aren’t always an option. Cannabis banking issues create many hurdles cannabis employers have to overcome.
Unfortunately, most national banks are FDIC-insured. As a federal organization, the FDIC follows federal laws over state laws. Since the national government still categorizes cannabis as a Schedule One substance, marijuana remains federally illegal, and many banks will not do business with companies in the industry out of fear of losing their FDIC insurance.
Left without an account, dispensary owners face a myriad of challenges from paying employees to accounting practices to 280E and tax compliance. While this is a frustrating situation, you do have options. By thoroughly understanding what the challenges are and how to navigate them, you can grow your business in a compliant and less stressful way.
Ways Dispensaries Bank and Manage Their Finances
In order to offer financial services to the industry, banks are required to perform additional due diligence to ensure they are adhering with anti-money laundering regulations and compliance controls. Supporting a cannabis business is risky and incredibly challenging for financial institutions.
With the ever-changing landscape of the cannabis industry, banks that agree to provide services to a plant-touching business must be far more critical and cautious in order to protect their organization.
1. Working with a Smaller Institution for Your Cannabis Banking Needs
You can bank with confidence with certain state and community banks that operate independently of FDIC insurance. This independence gives them the flexibility to serve the cannabis industry and take on marijuana clients. According to the US Treasury division of the Financial Crimes Enforcement Network (FinCEN), 812 banks and credit unions service the marijuana industry as of September 2023.
For these financial institutions, working with cannabis clients requires a thorough and labor-intensive process to protect their money and comply with strict regulations. Specifically, the Bank Secrecy Act (BSA) mandates that financial institutions have risk based procedures to ensure they are not enabling illegal activity. As part of this, banks are required to submit Suspicious Activity Reports (SARs) to FinCEN for clients who might be engaged in unlawful conduct. This reporting helps the US Treasury prevent money laundering, tax evasion, and other financial crimes.
This careful monitoring benefits cannabis dispensaries by offering them personalized banking solutions, making it easier to conduct legitimate business. However, the extra work that banks put into these relationships often results in higher monthly account maintenance fees for cannabis businesses, as banks need to perform regular and extensive compliance check-ins with their clients.
2. Business Transparency
When you open a dispensary bank account, always be honest and transparent with your bank. Financial service providers have to adhere to strict regulations to prevent money laundering. This simply means when you deposit money in the bank, you’ll need to be able to verify every dollar going into your account is from a state-legal sale.
When dispensaries use traditional banks, they face challenges due to the classification of cannabis as a schedule 1 substance. This federal designation creates heightened scrutiny on transactions, particularly when it comes to cash deposits and handling paper money. Many dispensaries accumulate large cash reserves due to the lack of access to credit services, which further complicates their financial operations. Banks are particularly cautious with these cash deposits, requiring detailed records and verification to ensure compliance with federal regulations. For dispensary business owners, transparency about the source of these funds and meticulous record-keeping are essential to maintain their bank accounts and avoid the perception of suspicious activity.
3. Using an Integrated System
Most cannabis business owners and marijuana dispensaries know that manually tracking their finances is stressful and susceptible to human error. To gain better peace of mind, many look for HR and payroll platforms to assist them. However, these tools weren’t designed with the cannabis industry in mind. This means many of the most complicated aspects of regulatory requirements aren’t covered by these platforms.
Luckily, Wurk was built specifically for the cannabis industry. The platform makes it easier for non-bank-backed companies to track their finances while remaining compliant. Imagine having an automated system that eliminates human error. Taking advantage of such a tool will help you save time and reduce stress even if you don’t have a bank account.
In addition, many Wurk clients have been able to streamline and improve their reporting and compliance efforts, therefore improving their chances of securing strong cannabis banking partners as they grow.
Why Cannabis Companies Need a Safe Banking Solution
1. Staying ACA Compliant
The Affordable Care Act (ACA) ensures that employees receive health care benefits if they work for a company with over 50 full-time employees. As a caring employer, you want to stay compliant with the ACA. There’s just one problem: insurance companies won’t take clients without a bank account.
If you are a cash-based business that hasn’t established a cannabis banking partner, know now that it is almost impossible to find a benefits carrier that takes cash payments. This means you need to be constantly aware of the size of your workforce. When you near 50 employees, come up with a strategy to slow the company’s growth. As a business owner, this is counter-intuitive. But legally, you’re left with few options.
Also, understand that this can hurt employee morale. If your team doesn’t understand the intricacies of the ACA, employees may think you’re denying them benefits because you don’t want to pay the extra costs.
Have a conversation with employees explaining what you have to do to remain compliant. Answer their questions and address concerns. It can also be helpful to find out what their health care costs are so you can raise the pay rate to help offset those costs.
2. Efficiency
Operating without access to the traditional banking system is a significant hurdle. Cash makes everyday business operations more challenging, especially when working with other businesses like maintenance providers, consultants, and suppliers of non-cannabis products. Dispensaries are often forced to handle large amounts of cash, which is not only time-consuming but also adds to the compliance burden by increasing the chances for error, whether it’s during payroll or paying taxes. In contrast, banks offer secure solutions that allow companies to keep their money safely, whether through a bank or credit union. With a reliable banking partner, businesses can reduce risk, meet compliance requirements, and pay bills electronically, which significantly streamlines operations and saves time.
3. Risk
Operating without a secure banking solution exposes cannabis companies to significant risk. Since cannabis is illegal at the federal level, many businesses are forced to operate in cash-heavy environments. This not only makes day-to-day operations more challenging but also increases the risk of theft, both for the company and its employees. Without the security of a bank, dispensaries must handle large sums of cash, leaving them vulnerable to robbery, and the use of cannabis dollars in banking adds layers of complexity.
Furthermore, relying on cash means there’s a greater risk of money being damaged or destroyed, and it becomes harder to grow your business or attract investors when you can’t easily prove profitability. While some local banks and financial institutions have started offering services, many charge additional fees for the risks associated with banking cannabis. This often leads to longer timeframes for processing payments and other financial transactions.
Ultimately, dispensaries use banks to mitigate some of these risks. Partnering with a bank that understands the cannabis industry’s unique challenges is essential for reducing these risks and ensuring business sustainability.
When it comes to paying the IRS in cash, we recommend reviewing their publication for best practices to submit tax funds.
