Deep Dive: Why Is Cannabis Banking Even a Topic?
Image: Rolling Stone
We've written about cannabis banking many times in this space. While we understand it can get a little repetitive, banking in cannabis is so important that we will continue to hone in on it until real progress is made.
Rolling Stone recently published a great feature article on cannabis banking, which reviewed the core issues
1: The Depth of the Problem
The article starts with a stunning fact.
in a recent study by Whitney Economics, 72 percent of cannabis businesses polled responded that banking was their No. 1 concern — 72 percent, ahead of taxes.
This sheds light on the importance of banking for cannabis industry professionals, who have to continually find creative solutions for mundane business practice like bank accounts & payroll.
Financial institutions are wary to work with cannabis businesses, since the federally illegal status of cannabis could make them liable for money-laundering charges. Those who do often face high regulatory costs and risks, which are passed along to their cannabis clients, who already face onerous tax burdens and prohibitive rules on writing off expenses like US Code 280e.
2: The Costs of an Underbanked Industry
An industry that is underbanked deals with a lot of costs. First, there is the physical burden of storing, counting, and transporting cash. Second, there is the regulatory burden of reporting and staying as compliant as possible.
Finally, the article doesn't mention this, but there is a safety cost of being dependent on cash, which results in an uptick in armed robberies like those seen in Washington state.
3: Pioneering Financial Institutions are Breaking Ground - Is it Enough?
While federal banks have by and large avoided doing business with cannabis businesses, local banks and credit unions have become a haven for the industry.
The pioneering FIs that first took on the risk of banking the industry were exceedingly cautious, and it was relatively unusual for them to offer a CRB (Cannabis Related Buesiness) more than a standard small business depository account, i.e., a place to store cash but little else.
However, we’re moving into a new phase of cannabis banking where we’re seeing financial institutions offer more than just a place to park cash. Some are starting to offer loans, payroll services, business insurance, etc., so it’s worth looking around to see what’s available out there. You might find the new range of services surprising and comparable to business services for non-cannabis businesses.
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No matter how much the cannabis industry modernizes and reaches into new markets, it will always be limited by the challenges of banking. Federal legalization is the ultimate goal, but banking regulation relief would be an immediate help to an industry that has more than enough headwinds to contend with already.
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