Banking illustration with two people standing next to a bank with icons

Cannabis Banking Guide: Choosing the Right Bank for Your Business

Cannabis Banking: An Introduction

Even though many states have legalized medical marijuana, the federal classification of cannabis as a class 1 substance remains a big hurdle to overcome. Due to the criminal classification of marijuana on a national level, new cannabis businesses throughout the country are struggling to find access to the banks and financial services needed to open and serve customers. The unfortunate truth is, many banks do not know how safe it actually is to work with state-approved cannabis businesses.

Some efforts have been made to clean up the stigma; however, finding a bank to trust with all of your cannabis banking needs can still be a considerable challenge. Check out our guide on cannabis banking for tips on how to find the best bank for you and your business!

Banking illustration with two people standing next to a bank with icons

Finding a Cannabis-Friendly Bank

As of June 2021, roughly 700 banks and credit unions in the U.S. openly service cannabis companies. While this may seem like a large amount, not all of these institutions are created equal and come with different rules, regulations, and compliances. 

There are often many hassles that can come with choosing the wrong bank for your business, with many inexperienced banks charging exorbitant fees to make up for the risk of having a client in the cannabis industry. As a result, many business owners feel they have no other choice but to keep vast quantities of cash on hand. This can be both unsafe and challenging to manage if you aren’t familiar with cannabis accounting laws.

Factors to Consider

There are several important factors to consider for any cannabis entrepreneur looking to find the right bank. 

Size of Business

Small businesses and startups often have trouble gaining approval from banks, especially without established financial records. Any small cannabis company should look for state-run credit unions rather than larger national banks. These institutions have fewer federal regulations and have even been given guidance from the government on how to service legal hemp and cannabis clients!

Eligibility/Guidelines

Keep in mind that banks and credit unions can only work with legal and properly licensed marijuana companies. When searching for a bank, do your research, and make sure to have the proper financial and legal documentation in order. 

Price

Price is also a significant factor when choosing a bank for your business. Remember that cannabis companies will have higher fees than normal accounts, as it is seen as a “higher risk” industry that requires more caution and attention to detail. 

Cannabis bankers in business casual clothing sitting and talking behind a window

Important Cannabis Banking Legislation

Any cannabis business owner should be up to date with the legal regulations surrounding the plant, and the progress that is being made pave the way for more cannabis companies. Here are two important legislations to know:

The SAFE Act 

Recently approved this April, the SAFE Act provides the “possibility for financial institutions, such as banks, to conduct business with cannabis enterprises that are licensed in states which allow cannabis for either recreational, medical use, or both”. The bill’s overall goal is to remove the fear that banks have of being penalized for accepting cannabis companies as clients and ideally give the cannabis industry fewer hurdles to jump through when it comes to conducting their business. The SAFE Act will now be entering the U.S. Senate where Majority Leader Chuck Schumer has indicated his support for the bill, along with various other policy reforms with respect to cannabis.

The MORE Act

The MORE Act, formally known as the Marijuana Opportunity Reinvestment and Expungement Act, aims to completely end the criminalization of cannabis on the federal level, removing the plant from the Controlled Substances Act. The bill would also work retroactively, expunging cannabis-related crimes off of people’s records, creating a federal tax on cannabis that would allocate the revenue back into community programs. From a business owner’s perspective, the passing of this bill would be a huge opportunity, allowing for interstate trade and the formation of regional and national cannabis markets to grow. 

Tips for New Cannabis Companies

Have the Right Documentation

One of the biggest steps to securing a bank account is to have the appropriate financial information and licensing for your business. Always be prepared with copies of your marijuana license, information from your seed-to-sale tracking system, and records from your point of sale software. Having this paperwork, along with legal documents like operating agreements, Articles of Incorporation or Organization, and EINs, will ensure that you have a fully compliant relationship with your bank. 

Be Upfront

When joining a bank, always try to maintain a transparent and honest relationship. Your bank should know the ins and outs of your business’s operations and financials, and you should have no issue showing them your accounting. Most importantly, DO NOT misrepresent or lie about the nature of your business just to secure a bank account. This could result in the expulsion of the account and serious legal trouble. 

Spruce Up Your Digital Footprint

Having an online business profile is an excellent way for banks to see your professionalism, as well as a commitment to growing your company. Not only will having a good online presence help increase sales, but banks will also look for this to learn who you are as a part of their “know your customer” checks for businesses. By seeing this, they can get a better idea of your business and can better help you reach your financial goals. 

Build a Relationship with Your Bank 

After choosing a bank for your cannabis business, it is essential to also maintain your relationship with them by meeting every so often to discuss the details of your business and the services you will need. Doing this ensures that you have a transparent and trustworthy communication method with your bank and shows your dedication to running a compliant and legal company. 

To learn more, check out our cannabis accounting blog or contact us today for a free consultation to discuss your financial options as a cannabis business.