Banking influences cannabis companies in the industry due to the illegality of the marijuana plant. Many businesses doing business with the plant have restrictions surrounding banking that limit the financial resources available to them.
As many of you know, marijuana banking is the act of providing financial services to cannabis companies to ensure they keep their money in a safe place rather than dealing with cash only.
Luckily, some cannabis-friendly banks offer services to businesses in the industry with regulatory restrictions.
Some states have implemented measures to address the issue to allow more cannabis companies to utilize bank services, but it remains a complex and evolving challenge, with ongoing discussions at both state and federal levels.
This article further explains marijuana banking, its current status, and the best ways to deal with banking restrictions.
Understanding Marijuana Banking: What Is It?
Marijuana banking is the process of delivering financial services to cannabis companies with strict regulatory guidelines.
For many companies, finding banking isn’t an option with the murky legality of cannabis, but some friendly cannabis banks have found ways to serve businesses.
Marijuana is indeed legalized for medical or recreational use in certain states within the U.S. but it limits cannabis companies from doing business legally with banking institutions.
The limited access is due to the federal regulations classifying marijuana as a Schedule I Controlled Substance which pushes banks to hesitate in offering traditional financial services to cannabis-related businesses.
The challenges arise because federal law still considers marijuana illegal, which can create issues for banks that operate under federal regulations.
As a result, many financial institutions may be reluctant to open accounts, provide loans, or offer other banking services to marijuana businesses.
The lack of access to traditional banking services puts a strain on marijuana businesses.
These constraints include issues with handling large amounts of cash, increased security risks, and limited access to financial tools that other industries take for granted.
The resolution of marijuana banking issues is an ongoing topic of discussion in both state and federal legislative bodies.
Marijuana Banking Status
Currently, bills are being pushed through Congress to minimize the banking risks of financial and cannabis businesses working together. These bills are the Cannabis Safe Banking Act and the rescheduling of cannabis.
If these bills get passed then the laws surrounding cannabis can lift the heavy risks imposed on businesses and financial banks.
The marijuana banking status is limited since the plant remains illegal to sell, distribute, and possess under federal law. Banking institutions aren’t legally allowed to handle money coming from a federally illegal business. Some can risk working with cannabis businesses but may receive negative consequences.
The Secure and Fair Enforcement Banking Act of 2023 or the SAFE Banking Act of 2023
The Safe Banking Act of 2023 was set in motion on April 26, 2023. It was introduced to Congress to provide protections for financial institutions doing business with cannabis companies.
Financial banking institutions won’t receive penalization for providing services to marijuana businesses as mentioned by the bill.
They won’t be liable for any service action for cannabis businesses providing freedom to both sides.
The bill is pending and has undergone several revisions to move the bill further along. There’s no telling whether the bill will get passed or when it may occur.
Cannabis companies should get prepared before anything legitimate happens within the industry.
If you’re a cannabis business looking to find financial banking solutions, it’s essential to plan out your next steps before the bill comes to pass.
How Cannabis Companies Are Influenced By Banking
If banking is restricted then how do cannabis companies bank? We know that many cannabis companies aren’t legally allowed to work with traditional banking institutions, but there are also other ways companies are hindered from banking.
Here are some ways cannabis businesses are affected:
- Cash-Intensive Operations: Due to the difficulty in securing banking services, cannabis businesses often operate as cash-intensive enterprises. This presents various challenges, including increased security risks. Companies handling large amounts of cash are more susceptible to theft or other criminal activities.
- Risk of Money Laundering: The lack of access to traditional banking can create challenges in tracking and regulating financial transactions within the cannabis industry. This raises concerns about potential money laundering activities, as the cash-based nature of the business makes it harder to monitor and control financial flows.
- Limited Financial Tools: Cannabis companies may face difficulties in accessing standard financial tools, such as loans, credit lines, or investment opportunities. This limits their ability to grow and expand their operations compared to businesses in other industries.
- Higher Costs and Inefficiencies: Dealing primarily in cash can lead to higher operational costs and inefficiencies for cannabis companies. Transactions become more time-consuming, and the absence of cannabis banking services can hinder efforts to streamline financial processes.
- Regulatory Compliance Challenges: Cannabis businesses that do manage to secure banking services often face additional regulatory compliance burdens. Financial institutions may impose stringent requirements and reporting obligations to mitigate the perceived risks associated with the industry.
These are some of the ways companies experience banking legal issues. The hindrances can influence businesses not to scale to their full potential.
However, they may have a better chance with the right financial resources and alternative banking solutions.
Best Ways Businesses Can Deal With Marijuana Banking Restrictions
Businesses that deal with marijuana banking restrictions should have a clear-cut protocol.
Here are some ways cannabis companies can utilize:
- Cannabis-Friendly Banks: Many can work with cannabis-friendly banks that follow strict guidelines. A few work with cannabis businesses to enhance their financial health.
- Work With Cannabis Accountants: Working with cannabis accountants can help you develop strategies for effective cash management, given the limitations on banking access for cannabis companies. They also help with navigating the compliance complexities of banking regulatory standards.
- Risk Mitigation: Preparing for all kinds of risks is essential for businesses dealing with cash-only transactions. Working with an accountant helps minimize regulatory and security risks as well.
These are some of the ways cannabis companies can deal with marijuana banking restrictions.
Working With Cannabis Accountants
Businesses wanting to wade through the regulatory constraints surrounding cannabis banking should work with a cannabis accountant who understands the regulations.
Accountants can help you get ready for any new cannabis legalization that comes forth and prepare your business financially.
Green Space Accounting can manage cash flow, financial taxes, and payroll for businesses operating within the cannabis industry.
