When it comes to banking services in the US, the cannabis industry is one of the largest underserved sectors. This status quo is largely due to the fact that cannabis is still an illegal substance at the federal level. Since banks are regulated by federal laws, they tend to stay away from dealings with owners of marijuana-related businesses.
The industry was valued at close to $14 billion in 2019 and is expected to record tremendous growth in the coming years. Abaca is an American fintech that is keen on tapping this potential. In this article, we will look at how Abaca has structured itself to work with banks and entrepreneurs in the cannabis industry.
There are 33 states that have decriminalized cannabis for medicinal use with 14 of these states allowing its use for recreational purposes.
With banking being one of the challenges for entrepreneurs running cannabis-related businesses, Abaca offers an apt solution. Through this online platform, you can open a bank account with one of its partner credit unions or banks. With this, you are able to access all the fundamental banking services at the comfort of your home or office.
As of the time of publishing this article, Abaca, in collaboration with its partners, is currently operating in Illinois, Missouri, Oklahoma, North Dakota, and Arkansas. This scope applies to cannabis businesses that are plant-touching. As of ancillary hemp or cannabis entities, your application can be accepted from any state within the United States.
Requirements for Opening a Bank Account With Abaca
Whether you are in the cannabis or hemp subsectors, you will need the following documents to open an account with Abaca:
- Articles of organization or incorporation
- Cannabis business license
- Business EIN
- Executed Bylaws or Business Operating Agreement
- Business permits
- Executed corporate minutes or banking resolution
- Customer profile on each signatory and your company
- W-9s on each signatory and the company
- 2 types of ID on each signatory
- Background checks
- Mutual non-disclosure agreement
One of the challenges faced by cannabis-related businesses is the unavailability of alternatives to cash payments. The industry largely operates on a cash-only basis. This aspect has resulted in such enterprises being a key target by thieves. News outlets are constantly reporting cases of robbery in cannabis dispensaries.
What’s more, the cannabis merchants’ inability to accept debit and credit cards has caused them to miss out on large sales. Like any other business, customers tend to spend more when using plastic money. As such, cannabis dispensaries and other related businesses can’t take advantage of this strategy.
Abaca seeks to assist these businesses by offering reliable payment solutions. Cannabis-related businesses that join Abaca can now offer their clients the pin-debit payment option. Dispensaries, as well as all the other cannabis-related businesses can also accept credit cards with the help of Abaca.
Businesses usually need substantial capital to grow. For those who can’t raise the required amount, bank loans come in handy. However, this financing option is not always available for business owners in the cannabis industry. Having identified this banking challenge, Abaca has incorporated the lending into its framework. Whether you need money for equipment, purchasing inventory, real estate, or any other aspect of the cannabis business, this financial institution is in a position to partner with you.
Partnerships With Financial Institutions
The services offered by Abaca are not just suited for entrepreneurs in the cannabis industry, they are also applicable to financial institutions seeking to work with these business owners. The partnership opportunity is founded on the fact that only about 1 in 20 banks offer services to cannabis-related businesses yet the industry’s sales is over $10 billion yearly.
Based on the fact that Abaca specializes in the cannabis industry, it has a system that allows it to;
- Do its due diligence on the owners of cannabis-related businesses and their bank accounts
- Make it easy for entrepreneurs in the cannabis sector to open and operate their bank accounts
- Monitor the incorporated businesses to detect any suspicious dealings
- Facilitates streamlined reporting
Upon partnering with Abaca, your financial institution is in a position of monetizing the cannabis industry through cash deposits, monthly account fees, electronic payments, and B2B payments. For instance, if you are a financial institution or private entity that offers loans to entrepreneurs in the cannabis industry, Abaca facilitates the loan servicing process by;
- collecting monthly payments and sending the related statements
- maintaining records
- collecting and paying taxes as well as insurance
- managing escrow in addition to impounding funds
- following up on delinquencies
- remitting money to the note holders
Financial institutions who do business with this bank partner will be in a position to;
- increase non-interest income
- reduce their reputational risk
- draw low-cost deposits
- address the challenges associated with compliance and the enacted regulations
- increase your competitive advantage in the sector
One of the key challenges that entrepreneurs in the growing cannabis industry face is banking. It is interesting that a sector whose worth is about $14 billion, and that has been expanding tremendously over the years, still struggles with obtaining the fundamental banking services. Abaca is one of the establishments that seek to deal with this crisis by working with the involved entrepreneurs as well as financial institutions.