Posted on: Feb 22, 2017By Michael Cindrich

Banking Problems Faced By Cannabis Businesses

When asked what the largest hurdle is for state-legal cannabis businesses, the answer you will commonly hear is “banking.”

Though cannabis can be legally used, possessed, cultivated, and distributed under certain circumstances in more than half of the states, there are almost no banks that will knowingly accept accounts from cannabis businesses.  The reason: cannabis remains an illegal schedule I controlled substance under federal law.  This creates a wide array of problems for those who are seeking to run their business the same as other legal, regulated businesses.  How do they run payroll? Pay taxes? Pay insurance, utilities, and other expenses? Perhaps the main issues faced by these companies are the risks associated with having large amounts of cash on hand.  Companies that deal in cash are more susceptible to robberies and burglaries and are forced to employ strict security measures to combat these risks.  The security measures carry considerable costs for the business, and ultimately do not provide complete protection.

Another large issue faced by cannabis businesses concerns investment capital.  If a business receives an investment from a fund on Wall Street, how will they pay back these investors?  Most institutional investors are not interested in receiving a briefcase full of cash, so other methods must be fashioned to make these opportunities more attractive to potential investors.  How can these businesses show investors and lenders how much revenue they are truly generating when they don’t have bank statements to support their stated revenue?  There is not an easy solution to this problem for businesses operating in the cannabis industry.

To make matters worse, operators and employees risk having their bank accounts shut down simply for accepting money from cannabis businesses.  All banks have risk management departments that are tasked with assessing the bank’s clients and determining whether these clients pose a substantial risk.  If the bank has information that suggests these individuals may be involved with the cannabis industry, they will likely have their accounts closed within a short period of time.

The only real solution to this problem is a change in federal laws and regulations concerning banking with state-authorized cannabis businesses.

Click here to read more about this subject in the San Diego Union Tribune.