Cannabis banking has never been simple. From the start, the federal prohibition on cannabis, coupled with long-standing skepticism and distrust of cannabis among financial institutions, has prevented otherwise compliant cannabis businesses of all types from accessing basic financial services.
Naturally, cultivators and dispensaries are among those who have the hardest time securing and keeping banking services, but businesses even tangentially related could be excluded from accessing the banking system as well.
In the cannabis industry, a distinction has grown between “plant-touching” businesses like dispensaries, cultivators, and manufacturers, and what are known as ancillary businesses. An ancillary business is any entity that does not directly touch the plant but instead offers support services to the manufacturers, cultivators, dispensaries, and others who do. Ancillary companies include security consultants, lawyers, accountants, test labs, marketing agencies, trade conferences, hydroponics retailers, and any other product or service necessary for plant-touching businesses to thrive.
You might think that a professional staffing agency that recruits employees for the legal cannabis industry, for example, should have no trouble securing banking. While that is a reasonable assumption, it’s historically wrong. A staffing agency working closely with the cannabis industry faces a tough choice: tell your bank that a significant percentage of your business comes from working with cannabis clients or tell a lie of omission and hope the bank doesn’t find out. Unfortunately, lying to your bank comes with significant consequences that could outweigh the short-term benefit of a bank account.
For years, many ancillary businesses chose simply not to disclose their cannabis-derived revenue to their banks. In fact, some still make this choice every day. The trouble with this approach, of course, is that the bank could find out and, at any time, immediately suspend or terminate accounts associated with the business. And for many ancillary business owners, this outcome has become a reality — sometimes more than once.
When this happens, the entrepreneur is faced with a decision. Should they find a new bank, maybe one that is open to working with cannabis clients, and pay the higher fees associated with the strict monitoring required by banks to ensure anti-money laundering compliance? Or should they simply find a new bank to lie to, waiting for the inevitable moment when they are caught once again?
While it’s true that an ancillary business will save on modest fees to make large cash deposits if they don’t disclose their business with plant-touching entities– compliant banking may cost a bit more and require some additional disclosures and monitoring to satisfy anti-money laundering and monitoring requirements the bank must abide by – these modest fees are well worth it. When a business lies to their banking partner about the nature of a significant portion of their business, they effectively cut themselves off from a collaborative relationship from their bank and additional financial services.
Businesses lying to their bank about their cannabis business could find themselves barred from seeking several services, including:
- Assistance with treasury services
- Cash management advisement
- Employee accounts and loans
- Business financing support
In particularly egregious cases, ancillary businesses may be “blacklisted” and prevented from seeking financial services altogether.
Additionally, when the bank doesn’t know an ancillary business caters to the cannabis industry, that cannot be direct in their marketing and promotional efforts. For example, if a company manufactures grow lights that work well for cannabis grow operations but hasn’t been open with the bank about selling equipment to this sector, they cannot advertise that it services the cannabis industry. If they did, the bank would likely see it and could terminate the LED lighting company’s account. In this way, lying to the bank hamstrings an ancillary business’s ability to position itself as serving the cannabis industry to its potential customers.
In the past, there were sometimes few alternatives to simply trying again and hiding the business conducted with plant-touching businesses. Today, there is little excuse for a cannabis business – ancillary or otherwise – to not have compliant, transparent banking.
Where there were few banks working with cannabis clients even a few years ago, there are now more than 185 banks open to working with the cannabis industry. These banks service all industry sectors in all 50 states. It’s still a small percentage overall, however – only about 2% of U.S. banks work with cannabis businesses – but that is still enough to cover the needs of ancillary businesses of all shapes and sizes.
The trouble for many cannabis entrepreneurs is simply finding these banks. Unfortunately, many banks have been hesitant to vocally publicize the fact that they are banking the industry, partially due to the lingering and pervasive stigma surrounding cannabis. The result is a slow word of mouth referral system that leaves many out in the cold.
When looking for a cannabis bank, it is important to have a partner that has done the hard work of identifying cannabis-friendly banks and building relationships. That’s where Fincann’s Cannabis Banking Financial Network comes in. Think of it like a specialized search engine for cannabis banking: all the options are already willing to work with the cannabis industry, cutting out weeks and months of searching, applications, and rejections that could follow.
With more than 185 institutions willing to work with the cannabis industry, there’s no good excuse to skip over compliant business banking options with real financial institutions. Accounts opened with full transparency eliminate one of the biggest headaches for ancillary businesses nervous to lose their bank accounts due to the smoke and mirrors they feel they need to have. It’s time for the cannabis industry to come out of the shadows, and that includes banking and merchant processing.
