Industry Insight: Understanding Cannabis Banking Challenges

Are you ready to unlock the vault of knowledge surrounding the complex world of cannabis banking? We promise to take you on an enlightening journey, unveiling the intriguing challenges that the cannabis industry faces due to the paradox of federal and state laws. We dive into the legal intricacies, financial obstacles and the ingenious solutions adopted by businesses, all while highlighting the potential industry changes on the horizon.

In this episode, we navigate the high seas of finance, exploring the risks that banks bear when servicing cannabis businesses and the creative means, such as partnerships with local banks and cashless ATMs, employed by these enterprises to keep their operations afloat. We also shed light on the potential legislative changes that could revolutionize the industry. Join us as we decode the complexities, celebrate the resilience, and speculate on the future of cannabis banking. This episode is a must-listen for cannabis entrepreneurs, investors and anyone intrigued by the dynamic intersection of finance and the budding cannabis industry.

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Episode Transcript

Speaker 0 (00:00):
Hi and welcome to Can Strategy elevating your
cannabis business venture thego-to podcast for cannabis
entrepreneurs looking to levelup their business game.
Today we're tapping into one ofthe most complex and intriguing
aspects of the cannabisindustry banking.
Yes, you heard that right theworld of finance meets the world
of cannabis.
On the surface, it may sounddry, but it's an area full of

(00:21):
intrigue, challenges andinnovative solutions.
It's also a critical part ofensuring the growth and
stability of the cannabis sector.
Whether you're an entrepreneurlooking to start your own
cannabis business, an investortrying to understand the risks
and opportunities in thisrapidly evolving sector, or
simply a curious observer, thisepisode is for you.

(00:41):
We'll unravel the complexitiesof cannabis banking, discussing
the obstacles faced by cannabisbusinesses and securing
traditional banking services dueto the federal classification
of cannabis.
We'll also highlight some ofthe creative solutions
businesses have adopted and thepotential changes on the horizon
.
Despite the growing acceptanceof cannabis at the state level,

(01:02):
it's still classified as aSchedule I controlled substance
under federal law.
This is the same category asheroin, lsd and ecstasy,
indicating that these substanceshave a high potential for abuse
and no accepted medical use.
What does this have to do withbanking, you ask?
Banks in the United States areregulated by federal law.

(01:22):
This means they have to complywith federal rules and
regulations, one of which is theBank Secrecy Act.
This act requires banks toreport any transactions
involving more than $10,000 incash and any suspicious
activities that might signalmoney laundering, tax evasion or
other criminal activities.
Given the federal stance oncannabis, banks can view

(01:42):
transactions with cannabisbusinesses as suspicious and
flag them as potential moneylaundering.
To better understand this,consider how banks work.
They're required by law tomonitor their customers'
transactions for suspiciousactivity and if they notice
something that could bepotentially illegal, they must
report it to the authorities.
In essence, a bank dealing witha cannabis business could be

(02:03):
perceived as indirectlyfacilitating an illegal activity
, despite the fact that thisactivity is entirely legal
within certain state borders.
This discord between state andfederal law puts banks in a very
precarious position.
The risks associated withservicing cannabis businesses
are high not just hefty fines,but more severe consequences

(02:24):
such as loss of charter, meaningthe bank would have to cease
operations.
Even criminal liability couldbe on the table for the bank and
its executives.
Now let's imagine you're a bankweighing the potential risks and
rewards.
On one hand, you have aburgeoning industry with
enormous financial potential, onthe other, you face significant
legal and operational risks.
When it comes to the bankingindustry, a sector known for its

(02:47):
aversion to risk, it's not hardto see why many financial
institutions have steered clearof the cannabis space.
They simply decide that thepotential legal and financial
fallout isn't worth the rewards.
This creates a massive hurdlefor cannabis businesses.
Without access to traditionalbanking services, they are
forced to operate mainly in cash, from accepting only cash

(03:10):
payments from customers topaying suppliers and even taxes
in cash.
The industry has adopted somecreative solutions in response
to this predicament.
First, let's talk about creditunions and local banks.
Unlike multinational banks,these smaller institutions are
usually state regulated, makingthem more inclined to work with
cannabis businesses, especiallyconsidering the potential

(03:32):
economic benefits for localcommunities.
Now, it's not a perfectsolution by any means.
These institutions often chargehigher fees due to the extra
risk and workload associatedwith cannabis banking, and not
all states have these types ofbanks or credit unions that are
willing or able to serve thecannabis industry.
Another approach is the use ofcashless ATMs.

(03:54):
These work in such a way thatcustomers at a cannabis
dispensary will use the terminalto withdraw funds that go
directly to the dispensary and acorresponding voucher is then
given to the customer.
This method provides aworkaround to the cash problem,
but it doesn't solve all issuesrelated to record keeping and
safety.
This approach has been widelyaccepted and successful in

(04:14):
dispensaries until a recentthreat to the practice in July
2023, when MasterCard instructedUS financial institutions to
stop allowing purchases ofcannabis on its debit cards,
followed by a slew of cease anddesist letters to cannabis
dispensaries.
It's yet to be seen if thismove will cause other companies
to take similar action.
Lastly, legislative efforts areunderway to bridge the gap

(04:37):
between state and federal laws.
The Safe Banking Act, forexample, aims to prohibit
federal banking regulators frompunishing banks for providing
services to cannabis-relatedbusinesses in states where it's
legal.
The Safe Banking Act has passedthe House seven times with
strong bipartisan support, butunfortunately has yet to pass in
the Senate.
As we delve further into therealities of the cannabis

(04:59):
banking conundrum, we encounteran interesting paradox that begs
for closer scrutiny.
You see, by denying cannabisbusinesses access to banking
services, the federal governmentfinds itself missing out on
potential financial benefits and, somewhat ironically,
perpetuating the very problemsthey aim to avoid.
Firstly, let's talk aboutvisibility.
As it stands, the cash-heavyoperations of cannabis

(05:21):
businesses make it difficult forfinancial regulators to keep a
close eye on transactions.
In a legitimate bankingenvironment, however, every
dollar is tracked, everytransaction is recorded.
From a regulatory perspective,incorporating cannabis
businesses into the existingbanking system would offer a far
more transparent view of theindustry's finances,
facilitating regulatoryoversight and making it easier

(05:43):
to monitor for fraudulent orillegal activities.
Secondly, we come to the matterof tax revenue.
By forcing cannabis businessesto operate primarily in cash,
the government potentially losesout on substantial tax revenues
.
If these businesses had accessto regular banking services, it
would be easier to enforce taxcompliance, leading to a likely
increase in government revenue.

(06:04):
It's an economic stimuluswaiting in the wings.
Lastly, there's the federalgovernment's purported concern
over money laundering.
The irony here is that, bydenying banking services to
legitimate cannabis businesses,the government could
inadvertently be driving sometransactions underground, thus
creating the very conditions formoney laundering to thrive.

(06:25):
Conversely, allowing cannabisbusinesses to use banking
services could mitigate thisrisk, providing a regulated
environment for financialtransactions to take place.
One might argue that it's inthe government's own interest to
reconsider its position on thematter of cannabis banking, but
until they do so, we continue tonavigate the world of doing

(06:45):
business with oodles of cash Forpotential investors, this
banking issue needs carefulconsideration.
Can you, as an investor, dealwith the risks and headaches
associated with a predominantlycash-based business?
How comfortable are you withthe lack of financial
transparency that can come withcash operations?
The cannabis industry is notfor the faint of heart, but for

(07:06):
those who can navigate thesewaters, the potential rewards
could be significant.
To wrap up, the issues faced bycannabis businesses regarding
banking and financial servicesare multi-layered, steeped in
regulatory complexities andlegal contradictions.
While these challenges may seemdaunting, they are part and
parcel of a rapidly evolvingindustry that teeters on the

(07:28):
edge of federal legality andstate entrepreneurial spirit.
With any seismic shift insocietal norms, such as the
legal acceptance andcommercialization of cannabis,
growing pains are inevitable.
Yet these hurdles also serve asa testament to the industry's
resilience and potential.
This narrative is far from over.
With legislative changes on thehorizon and an industry

(07:48):
tirelessly advocating forfinancial reform, the hope for a
more accessible and securebanking environment for cannabis
remains alive and strong.
Thank you for joining us onthis exploration of cannabis
banking.
We hope it's offered you aclearer understanding of the
financial challenges andopportunities in this space.
If you found this episodevaluable, be sure to subscribe

(08:08):
to our podcast, can Strategy.
Elevate your Cannabis BusinessVenture and leave us a five-star
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If you're a leader in cannabisbusiness, whether a small
startup or a booming enterprise,and you're looking to navigate
these waters effectively, don'thesitate to reach out to Can
Strategy, the go-to cannabisbusiness consulting firm, for
all your cannabis businesslicensing, launch and

(08:31):
operational development needs.
Until next time, keep growing,keep learning and here's to
making the cannabis industry thebest it can be.