The Challenge Of Providing Banking To The Cannabis Industry

In spite of efforts to legalize cannabis at the national level, “state-legal” cannabis businesses are still struggling to obtain regular access to banking services. The root cause for this hindrance is the current federal status of cannabis.  It is still labeled as a Schedule I substance under the Controlled Substances Act (“CSA”). 

Still, for those state-legal cannabis businesses that do have access to banking service, they are almost always suspiciously questioned about their compliance, especially with the Anti-Money Laundering regulations. However, The United States Department of Treasury’s Financial Crimes Enforcement Network or (FinCEN), reports that there are quite a number of financial institutions that are successfully serving state-legal cannabis businesses. These numbers are continuously growing. 

Much of the resistance from the banking industry’s involvement with cannabis businesses has to do with fearing the loss of insurance and account with the Federal Reserve, as well as an increase in “due diligence costs”, and reputational risks.

However, there are many instances where banks that do serve state-legal cannabis businesses have not faced these consequences. Institutions that follow FinCEN guidance have generally been able to serve these businesses, though outcomes vary. This is not legal advice — consult counsel on your specific situation. 

Current Legitimate Ways To Accept Payments

At this stage, cannabis businesses have very limited options to accept cashless transactions, and each carries compliance considerations. Here are some methods merchants encounter today — review each with your bank and counsel before using:

• Cashless ATM

Some operators use “cashless ATM” setups, where a card terminal runs a sale like an ATM withdrawal rounded to the nearest $5. Note: the card networks prohibit this method for cannabis, and misrepresenting the transaction type carries serious compliance and legal risk. This is not a method Bankful supports or recommends — it’s included only so merchants can recognize and avoid it.

• ACH Processing 

ACH or (Automatic Clearing House) are payments made by the customer by using their bank account to direct payment into a merchant’s account for a purchase made. This is all contingent on whether the processing and funding banks have approved the use of cannabis facilities. 

• eChecks Payments

In its simplest form, eChecks are similar to accepting checks online. The check is then printed with the customer’s “virtual” signature. It is then either electronically or physically deposited into your account. This method is useful in that payment information can be stored within the payment gateway for repeat customers, that way there’s no need for them to re-enter their information. 

Take Great Care In Choosing Your Provider

There is no question that the cannabis industry is highly regulated. The issue about choosing the right and the legitimate provider is also a critical one, as a poor choice can land you and your business in legal hot water. 

Although many providers pose as reputable and legal, do your due diligence before you blindly sign on with them. 

Taking The High Road

The current view of the cannabis industry continues to be mired in controversy and poor reputation. Just like there are some good, law-abiding providers, there are many more that are fly-by-night con-artists, promising great things, only to get shut down and your funds frozen.

It’s a much better choice to choose a provider wisely, and focus on long-term sustainable growth, ensuring a better, more positive reputation for the cannabis industry. 

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Disclaimer: Bankful provides payment software and orchestration, and in some arrangements acts as the direct payment facilitator (processor of record). Processing eligibility and continued processing are determined at underwriting by the processor of record and its sponsor bank(s) under the applicable terms, which can change.