5 Common Challenges with Cannabis Banking & How Financial Institutions Can Overcome Them

As the cannabis industry continues to grow, so do the opportunities for financial institutions. Cannabis-related businesses are currently forced to operate almost exclusively in cash due to their inability to access traditional banking services. As a result, they must pay high fees on all transactions and often need help tracking their sales.

Despite these challenges, the potential for financial institutions to provide services to the cannabis industry is huge. With proper compliance programs in place, banks and credit unions can ensure that they are handling transactions in accordance with federal law.

In this article, we’ll look at some of the major challenges facing financial institutions that want to do business with cannabis-related companies—and what your bank should do about them if it wants its customers’ money!

Key Challenges with Cannabis Banking

Legality

The biggest issue banks face when considering cannabis banking is the fact that it’s still illegal at the federal level. The U.S. government classifies marijuana as a Schedule I drug under the Controlled Substances Act (CSA). Still, many states have passed their own laws that make marijuana legal, and more are expected to do so in the coming years. This has created a quandary for banks: If they do business with cannabis companies, they could be prosecuted by the federal government for money laundering. This is because banks are required under U.S. law to report any transactions they deem suspicious.

Industry Experience is Understandably Lacking

While the cannabis industry is growing rapidly and becoming more mainstream, it’s still a relatively new market for most banks. Because of this, many banks don’t have much experience working with cannabis companies, and the ones that do are often hesitant to offer their services because of its legal risks.

Increased Scrutiny

Banks are also more hesitant to work with cannabis companies because they face increased scrutiny from regulators. If a bank is found to be violating federal laws by providing financial services to marijuana businesses, they could face fines and even criminal penalties. To protect their balance sheets, many banks choose not to work with cannabis companies at all.

Regulations

The Cannabis Industry is currently operating in a legal gray area. The federal government still considers marijuana illegal, but several states have passed medical or recreational use laws. This creates a conflict between state and federal law, leaving many banks unsure how to handle the legal cannabis industry. In addition, banks are required by law to report suspicious activity that could lead to money laundering or other financial crimes; this includes providing services for businesses that deal in cash only.

Compliance Challenges

Due to the unique nature of the cannabis industry, banks need to be extra vigilant when it comes to compliance. As with most industries, companies need to have proper documentation for their products and services—but in this case, state law may conflict with federal law.

Key Solutions for Cannabis Banking Challenges

Education and training.

Financial institutions need to understand the unique nature of cannabis banking, which can not be learned overnight. The lack of industry experience makes it difficult for financial institutions to know how best to navigate the legal landscape, which could result in potential violations and fines. For instance, financial institutions need to know how to properly file SARs (Suspicious Activity Reports) and BSA (Bank Secrecy Act) reports, which are required by law.

DDA (checking) accounts.

A DDA is a bank account used by many cannabis companies to manage their cash flow. These accounts are similar to business checking accounts but are not federally insured by the FDIC (Federal Deposit Insurance Corporation).

Cash management and treasury services.

Many cannabis companies need help managing their cash flow and maintaining a proper treasury management system. This can include everything from making deposits, paying bills, and providing other services related to financial management.

Compliance services.

One of the biggest challenges facing cannabis banking is compliance. Whether it’s ensuring that your clients are following state regulations or ensuring that your bank stays compliant with federal laws, you need to be able to rely on your compliance officers to make sure everything is in line. This can be especially difficult when it comes to new industries like cannabis, which are often operating under new or unclear laws.

This means that each bank must be aware of the laws in their state as well as any other state where they do business with cannabis businesses. They must also be aware of any other federal rules or regulations that may apply to them as a result of their business relationship with these businesses. Compliance services are an important way for financial institutions to address the needs of their clients and provide them with solutions that make sense for them as well as their industry.

BankersHub Cannabis Banking Courses

If you want to learn more about cannabis banking, BankersHub offers a certification course on the subject. Our course is designed to help financial institutions better understand the challenges of cannabis banking and how they can overcome them.

BankersHub provides trusted resources for cannabis banking, with the goal of helping financial institutions overcome the challenges of serving the cannabis industry. Our courses and resources are designed to help you understand how cannabis banking works and what you can do to serve your clients in a compliant manner.

As you can see, the cannabis industry is facing many challenges in regard to banking. However, with the right solutions and support from industry experts like BankersHub, these issues can be overcome quickly. Our courses are designed to provide you with all of the knowledge and tools necessary for success in this rapidly growing sector! If you’re looking for more information about our classes or want some guidance on how best to approach your own financial institution’s decision-making process when approaching this topic, contact us today.