Cannabis remains federally illegal in the United States. This means it is illegal for banks to handle medical and recreational cannabis revenue. As with other aspects of the cannabis business, the federal illegality of cannabis greatly complicates life for business owners.
Large national banks comply with federal law and refrain from doing business with cannabis companies. Some small, local banks, however, work with cannabis businesses despite federal prohibition. An increasing number of banks have shown willingness to work with cannabis businesses. These banks must be incredibly cautious to follow various federal regulations notably including the Banking Secrecy Act. The Banking Secrecy Act was designed to prevent money laundering and other abuses of financial institutions. One component of the Banking Secrecy Act is reporting transactions of over $10,000 in cash. This is likely to flag cannabis businesses because most of their transactions are cash. Banks must go through a great deal of paperwork and procedures to demonstrate that the large amounts of cash brought in by cannabis businesses are not indicative of money laundering.
The intensity of federal regulation makes banks reluctant to become involved in cannabis businesses because unless an operation is extremely successful, from the perspective of many banks, it might be more trouble than it is worth. Increasingly, however, as more banks adopt internal programs which allow for cannabis banking, banks need the ability to bank cannabis to be competitive.
The most important takeaway for new cannabis businesses is to find a local bank who is willing to work with cannabis. Do not try to hide what industry a business is part of in order to work with a larger bank. It is also key to follow the instructions of the bank and make sure that everything is carried out properly.
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