Contrary to what’s widely reporting by the media, cannabis banking no longer an issue. Bank accounts are widely available to cannabis businesses buy getting a bank account for a cannabis business is more complicated than in other industries. Here’s what you should know.
What are your options?
Since 2015, when banks and credit unions began using Hypur Comply, our cannabis banking software, to bank MRBs, we have seen a lot of changes in cannabis banking.
Large banks still won’t provide banking services to cannabis businesses. Cannabis banking is solely provided by local and regional banks and credit unions.
Some financial institutions serve a few of their long-term customers who are also in cannabis but most cannabis banking is provided by financial institutions who have dedicated MRB banking departments, staff that understand the cannabis industry, and specially designed processes for the unique needs of cannabis businesses.
In the early days of state-legal cannabis, financial institutions that served cannabis businesses rarely talked about it. In fact, many didn’t even want people to know they were considering banking MRBs – preferring to have conversations in the hall or private rooms at conferences. Now many financial institutions openly promote their cannabis banking programs.
MSOs can now get banking for all their locations from a single financial institution.
Like we said, much has changed in cannabis banking and it all benefits cannabis businesses.
Variations from state to state
Every state, and even every county, can have different rules and regulations regarding cannabis business licensing. This can include business requirements that you’ll need to follow, as well as renewal periods. In some areas, you’ll only need to file documents to renew your cannabis license annually, whereas in other places it could be quarterly. Depending on this frequency, you may have more requirements from a prospective financial institution.
Wherever you’re located, you’ll need to register your business with your local corporation commission. Banks and credit unions check that your business is listed there, and is in good standing, before they will even consider giving you a bank account. This goes for all industries, not just cannabis. There, you’ll need to include your meeting minutes showcasing who your business owners are, any people with voting rights, and other stakeholders. We’ll get back to this later.
Know your customer
The Patriot Act requires financial institutions to gather various information about clients, something generally referred to as Know Your Customer (KYC). The KYC requirements are heightened when working with customers that present a high risk for money laundering and terrorist financing. The idea behind it is that banks or credit unions should be able to predict with relative certainty what kinds of transactions their clients will conduct so that it’s more apparent if there is suspicious activity.
Because of the inherent risks of the cannabis industry, particularly due to its cash-intensive nature, even the most cannabis-friendly banks need to adhere to enhanced due diligence (EDD) requirements. So, be prepared to answer a lot of questions before you get a bank account.
Your financial institution will want to know if you’re expecting a lot of incoming or outgoing wires in your business. Perhaps you’re using an international vendor for something. Your bank or credit union will want to know more about who they are and what they do to ensure that those transactions are reputable.
The financial institution will also need to know which domestic partners you’ll be working with. Whether it’s your grow house or distributor, landlord or office supplies, they will need to know who you’re buying from or selling to, and what your expected ticket sizes will be. Once you have a bank account, it’s vital to keep your bank or credit union informed of any changes. It’s great if your business is booming, but you’ll want to tell that you’ll be buying more product or spending more on warehousing so that they don’t flag those transactions as suspicious.
Reputational risk
Your cannabis license and bank account can be conditional on certain reputational elements. As a result, getting a misdemeanor or felony DUI could result in your license or bank account revoked. This rule applies to anyone listed on your company, so if your silent partner commits a crime, you and your business could suffer the same consequences.
Depending on your state, you may find that the bank holds you to different standards than your cannabis license. For example, you might be able to keep your dispensary license if it’s revealed that you are a member of a controversial organization, but your financial institution might close your account. Associating with you and your business can pose a reputational risk to your bank or credit union, and financial institutions are inherently risk averse.
Best practices
Cannabis banking has a high compliance burden for financial institutions. If you want to impress your bank or credit union, show them that you can document everything and be proactive.
When you apply for a cannabis bank account, you will have a higher chance of getting accepted if you can show a business plan including anticipated income and expenditure. Even if it turns out that your predictions aren’t perfect, you will prove to your financial institution that you know how to write documentation. This can help to reassure them that when they ask for details, you will be able to provide them with the evidence that they need for their compliance audits.
If you need help, Hypur can introduce you to cannabis-friendly banks and credit unions in your area. We have excellent relationships with a nationwide network of financial institutions. Start banking your cannabis business with a reputable financial institution today.
