Your Cannabis Company Can Get a Bank Account but Not Easily
Opening an account is challenging but in many states banks are increasingly accepting deposits from of cannabis companies.
Difficulty accessing typical business banking services has plagued the cannabis industry since its inception. While cannabis remains a largely a cash-based industry in some states, numerous companies have managed to tactfully operate around financial obstacles with some success.
The main concern banks face is that because marijuana remains on Schedule 1 of the Controlled Substances Act, accepting deposits from cannabis businesses that actually handle the plant can be deemed money laundering. Under federal law, money obtained from illegal transactions cannot be FDIC insured, and banks are required to insure all their depository accounts. You see the problem.
However, more banks are accepting of cannabis than ever before.
As CEO of ONE Cannabis Group, I conduct business within the tangled federal parameters of a unique market. Banking in this industry requires deft maneuvering, to say the least. Cannabis companies across the country are constantly at risk of account closures, which some politicians have argued makes it harder to determine their legitimacy. In my 10 years in the legal cannabis industry, I've been kicked out of 10 banks-- a good friend kicked me out of two of them. It happens, and you move on to the next one.
It's not fair to rattle our sabers at the banks, however. The ones that are taking on cannabis accounts are doing so at significant risk to themselves -- while it hasn't happened yet, the possibility of their FDIC insurance getting revoked is very much present. However, banking is possible when the correct strategies are applied. We've successfully banked in multiple states and operated cash-only for just two years. Here's how to do it and what you can expect.
Securing a bank account.
This is big hurdle but clearing it is very doable. Many will tell you that opening a new account is simply out of the cards, but that's not true. Federal banks aren't worth your time -- they absolutely will not take on cannabis accounts. Some credit unions and regional banks do offer their services, however. Like everything related to cannabis, it varies from state to state.
Colorado banks are secretive on the matter -- there are at least seven banks currently handling cannabis accounts, but five of them won't consider opening any new ones. The other two have waiting lists of up to two years -- not ideal, but nothing in cannabis banking is. California has a similar structure in place. Recently legalized states are addressing the issue, but nothing concrete has been established.
New hurdles have developed in the last year as well. The Cole Memo was rescinded in January 2018 and the IRS has put pressure on banks to cease opening accounts. Naturally, this is putting newcomers and small business owners at a disadvantage as the industry sees an increase in consolidation. Our ability to offer franchisees access to a bank is a major attractor to many prospective ONE Cannabis partners, which is an indicator of its difficulty.
Newcomers have limited options, but options nonetheless. Determine which banks are viable in your state, tell them up front that you operate a cannabis-related business and start building a relationship. You'll need quality financial specs and patience. Too many red flags will mean the end of your banking chances, so every financial move must be accounted for. When you finally do get a bank account, start preparing for possible monetary freezes down the road. You can fly under the radar, but knowing your alternative options will save you from panic if the day ever comes.
Managing your finances
After securing a bank account, you can expect routine, multi-tier audits that will review your bookwork, metrics and compliance. You'll need efficient and astute accountants, which aren't abundant in cannabis -- many auditors find shoddy work that barely passes for bookkeeping when examined. An adept financial team is the only chance you have. Your best option is to hire accountants that have been through an IRS audit or two with a marijuana business.
Understanding additional costs
After vault fees, additional bank charges and transportation, you're typically going to spend anywhere from $6,000 to $14,000 a month to house your money. Transportation can also be touchy-- in Denver, for example, only two companies are legally permitted to transport cannabis cash. The banks won't accept it from anyone else.
Knowing your risks
The nebulous banking situation can affect employees on a personal level. There have been instances of banks freezing employee accounts when they discovered their client worked for a cannabis company. Oftentimes, the account will be closed and employees won't see their money for up to two weeks. Masking the company's name isn't foolproof by any means; a simple inquiry into the IPN number of a direct deposit can reveal the origin. However, it safeguards your employees to some degree.
Also, if you do have a bank account, you will likely have to sign a waiver foregoing insurance on your money -- if it's gone, it's gone.
Outlook on banking in cannabis
There's also a lot to be excited about. Enacting the STATES Act pending in Congress would be a large step forward. There haven't been any policy improvements on the federal level as of late, but there are several indicators of a coming change.
The fact that more financial institutions are working with cannabis doesn't mean your state has more open doors than last year -- it simply means more states have legalized. However, that indicates a growing acceptance of the plant.
The American Bankers Association has also called for a change after surveying their members. They, too, see the faults in the current system and are beginning to call on legislatures to act. My in-house accountants also predict states will begin to push for a better solution in the near future. Add all of these factors together, and the possibility of improvement becomes much more likely.