The cannabis industry is a growing industry with many countries legalizing the growing of medical marijuana. Yet, the industry remains one of the most under-served with banking services and it is the case since the growth of marijuana has not been embraced fully. Some fintech startups are coming up to assist with banking services for the industry.
Position of American Bankers Association on Cannabis Banking (ABA)
- While ABA takes no position on the moral issues raised by legalizing marijuana, the growing number of states that allow its sale and use raises practical issues that must be addressed.
- ABA believes time has come for Congress and the regulatory agencies to provide greater legal clarity to banks operating in states where marijuana has been legalized for medical or adult use.
- Those banks, including institutions that have no interest in directly banking marijuana-related businesses, face rising legal and regulatory risks as the marijuana industry grows.
Banking in the Cannabis Industry
Many banks are coming up in the U.S to help with banking services in the cannabis industry. There are over 700 banks and 150 credit unions that are serving the legal medical marijuana industry. The number is expected to keep increasing as legal cannabis is embraced. Abaca is one of the institutions serving the industry within the U.S. It allows clients in the cannabis industry to open virtual bank accounts and operate them from their homes or offices.
Although many states are legalizing the growing of medical marijuana, many banks and credit unions have kept their hands off the marijuana industry. Only less than two percent of credit unions and banks are serving marijuana-related businesses. It is because they consider it risky. It is a hard decision for financial institutions to decide whether they will serve the industry.
Marijuana Banking Regulations
Any bank that is willing to serve the marijuana industry must comply with strict rules governing the marijuana industry. One of the risks banks face when servicing marijuana-related industries is money laundering and they could face seizure of such funds. They also risk losing their accounts with the Federal Reserve. To avoid such risk, banks must comply with the following marijuana banking regulations issued by the Department of Justice (DoJ).
Banks must ensure that those they serve do not distribute cannabis to children and the revenues from marijuana are not used to fund criminal activities. As such, banks must do due diligence to know their customers before they can start serving them.
There are many marijuana-related businesses that have had their banking services terminated or are finding it hard to get accepted by banks. This is one of the reasons why the number of banks serving such customers remains low. There is also inadequate reporting about transactions with marijuana-related businesses.
In 2019, the House passed SAFE Banking Act. Among other things, the Act intends to enable participation in formal banking and the financial sector. It will allow cannabis businesses to have deposits account, accept credit cards, write checks, acquire loans, pay salaries, and pay taxes.
In 2020, California Governor Gavin Newsom signed Assembly Bill 1525 into law. The bill allows banking institutions to serve the cannabis industry and makes it easier for cannabis businesses to acquire loans and other financial services.
Banking Options for Marijuana Businesses
According to the Cannabis Banking Authority, as of January 2021, more than 180 financial institutions across the U.S. are officially and openly friendly to cannabis and related industries.
Since there are only a few banks offering banking services to marijuana-related businesses, marijuana companies need to find alternative banking options. Any company that is seeking banking services should consider small state-run banks and credit unions. It is because it is challenging to find a bank that accepts cannabis-related business due to strict regulations governing the industry. Most banks will not risk federal punishments and cumbersome paperwork they must submit to comply with FinCEN’s guidelines.
In some states like Colorado, Washington, Nevada and Oregon, you can easily find a bank that accepts marijuana clients. There are other states you can easily get banking services for the marijuana industry like Florida, Illinois, New York, Minnesota and Massachusetts. If you are in states that have fewer marijuana banking options, you may just have to small state-run banks or any one of the 700 banks or 150 credit unions.
Hemp Friendly Banks and Financial Institutions in the US
The following are some of the banks that are offering banking services to hemp farmers and cannabis businesses.
Silicon Valley Bank
Silicon Valley Bank has lowered its barriers to people in the hemp industry. The bank is serving CBD merchants and the healthcare industry. They are promoting access to banking services by hemp-related businesses by publishing public policy that helps the government understand the needs of their clients.
Chase Bank is opened to CBD-related customers. However, it does not offer payment processing services to these businesses. The bank is taking a calculated move as it waits for the SAFE Banking Act to avoid risks.
North Bay Credit Union
North Bay Credit Union came out publicly to admit that it handles transactions by cannabis-related businesses. Normally, it serves businesses located in the areas north of San Francisco. However, it limits the size of deposits made by such businesses. North Bay Credit Union handles these transactions contrary to federal law, thereby risking prosecution.
Oklahoma State Bank
Oklahoma State Bank provides you with the necessary financial tools that your Cannabis business requires. Through the bank, you can pay your employees and vendors and deliver payroll directly to the bank account. Other banking solutions they offer to cannabis businesses include business checking, bill pay, ACH payroll origination, MasterCard debit/ATM card and online banking with a mobile app.
Sound Credit Union
Sound Credit Union was founded in 1985 and has its headquarters in Tacoma, WA. It offers account opening for Cannabis businesses. You only need to fill an online application form to get the Cannabis Account.
Paybotic is a payment solution for the Cannabis industry. It partners with a bank that serves the cannabis industry by adhering to state-to-state banking laws. Paybotic ensures that medical marijuana doctors access financial services.
Many businesses in the Cannabis industry ate denied banking services like bank deposits. Paybotic bridges the gap by providing a means for the business to deposit their money. They also offer card and mobile payment services to medical marijuana doctors and businesses.
NorthBay Credit Union
NorthBay Credit Union started providing banking solutions to the Cannabis industry in 2017. The services they offer include electronic bill payments, ACH, wire transfers, merchant processing services and debit cards.
They have partnered with lenders who can lend your business a loan. This will ensure that all your lending needs are catered for. Besides, your business gets to enjoy payroll services for cannabis companies.
O Bee Credit Union
O Bee Credit Union was founded in 1955 in the Olympia Brewery. It offers banking solutions to underserved industries and especially the cannabis industry. You can get direct deposit, check deposit through mobile apps, savings account for employees, and loan providers to employees.
To open an account, you need to pay a $500 application fee. You will also need to provide the following documents; Tax ID number, Business license and duly filled application form. You will also need to present the release of records from the Liquor and Cannabis board.
US Eagle offers banking solutions to cannabis-related businesses in New Mexico. It ensures safe and secure payments mean and that all transactions adhere to federal and state banking regulations. Cannabis-related businesses can enjoy business checking accounts, savings accounts, debit cards, online and mobile banking, and domestic wires. You also get to enjoy cash handling services, online bill payment solutions and ACH/EFT electronic transfers.
Banking for Hemp Companies
The situation for hemp companies is no different from that of marijuana companies. The CBD has not yet been cleared and is still being investigated for safety concerns by the FDA. The only law that exists governs cultivators, but it does not regulate laboratories and retailers. This is making many financial institutions reluctant to work with companies dealing with hemp.
It is easy for hemp growers to get banking services compared to companies that sell hemp products. If you are in a state that understands hemp-CBD regulations better then you have higher chances of getting a bank. Some of the banks you can consider if you are a hemp-CBD Company include North Bay Credit Union, Customers Bank, and FLC. However, you must be very transparent about your dealings to get accepted by these banks. To ease the process of opening a compliant bank account, you can outsource the services of institutions like Abaca.
How to Finance CBD Businesses
CBD business have fewer financing options since very few banks are accepting to finance them as such, they can take the following options:
CBD businesses can look for alternative financing through angel investors or wealthy individuals who can fund them. If your business has an impressive business plan, then you can try AgelList and see if you can get a marijuana investor. You can also reach out to family and friends to help you with funds for your hemp-related business.
One of the ways to start and grow your business is starting small. It helps your business to generate funds for its expansion. Instead of looking for business funding, you can use the revenues that your business is generating to fund your activities. It is less risky and gives your business time to grow.
You can save your venture and avoid borrowing funds. It is also a secure way of growing your business. However, it will take long before your business takes off. You can calculate how long you need to save for your CBD-related business by looking at your capital requirements.
Additionally, you can get a personal loan to fund your CBD-related business. The risk is that personal loans attract higher interest rates and to get one, you need an excellent credit score. You must also have proof of income. You may also need to give your asset as collateral for a loan. Failure to repay the loan could hurt your credit score.