Building a business starts with a checklist. By breaking down this massive venture into manageable chunks, you can create a list of simple tasks that you can check off one by one.
Settle on a name for your business (CHECK)
Consult an attorney to draft charter documents (CHECK)
Obtain your tax identification number (CHECK)
Open a business bank account (HMM...)
Unfortunately, not every step on that general business checklist is as easy for those stepping into the cannabis industry, and getting a bank account is still far more difficult for marijuana businesses than it should be.
Due to the highly federally regulated nature of banking, many major national and state banks have been hesitant to provide financial and banking services to marijuana businesses. Understandably, banks and credit unions don’t want to be penalized with fines or other punishments for violating federal law, or face increased scrutiny for openly doing so.
Initially, this forced cannabis companies to operate on a cash-only basis, and many still operate in this fashion. This, of course, puts marijuana businesses at huge risk of becoming victims to theft, accounting errors, and mismanagement of their company funds. But it’s more than just a bank account issue:
“Businesses can’t get loans, customers have to pay in cash, and state tax collectors are processing bags of bills.” ¹
Despite the tremendous growth of the industry, entrepreneurs also face additional barriers to entry due to the high cost of starting up. Most do not have access to traditional bank institutions to apply for business loans, credit lines, and startup capital.
Companies wishing to grow face issues in remaining competitive to new hires. With limited ability to offer automatic direct deposit of payroll, write checks to employees, or provide matching 401k contributions, recruiting new talent remains an uphill battle.
The good news is that the tide is changing. The bad news is that is is happening slowly.
Some banks are making strides in the industry to provide alternative banking options for the cannabis industry, but it often comes at a high cost for marijuana businesses. In other states, intermediaries have popped up to fill the gap between federally-prohibited, but state-allowed marijuana businesses and financial institutions.
Between 2014 and 2017, the number of banks and credit unions serving the cannabis industry tripled according the U.S. Treasury. As of 2017, approximately 400 banks and credit unions provide limited services to marijuana businesses; a number that continues to grow.
This growth from 2014 is no mere coincidence. In early 2014, the U.S. Treasury issued a statement to clarify the Bank Secrecy Act in regards to marijuana-related businesses, effectively providing guidance on how banks and credit unions could do business with the cannabis industry without being a high priority for prosecution.
Local institutions such as credit unions and regional banks, who are chartered at the state level, were some of the first to provide services for marijuana businesses. Despite these baby steps, these banks are taking on added requirements, as they are required to file additional paperwork and adhere to increased regulations; this model simply isn’t sustainable.
While banking is certainly becoming more accessible to the cannabis industry, we won’t see true access until the federal government declassifies marijuana.