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Cannabis Banking 101: Definition, Regulations, & Importance
The cannabis industry has seen massive growth in recent years. It’s no surprise that, with thirty-seven states having legalized medical marijuana and another twenty-one allowing recreational use, cannabis companies have been sprouting up left and right.
But what is surprising?
The difficulties cannabis-related businesses encounter in obtaining financial services and loans.
Cannabis is a multi-billion dollar industry in the US. Still, the lack of federal regulations regarding banking makes it difficult for banks to serve cannabis-related businesses. Because of this, many cannabis companies have turned to cash-only transactions—which presents its own issues. Without access to banking services, cannabis companies are forced to operate in a legal grey area and are often targets for theft and other criminal activities.
With so many new laws and regulations on the horizon, it’s essential to be familiar with some basics. This post will help you get started.
What is cannabis banking?
Cannabis banking is the process of a bank accepting deposits and making loans to an entity that produces, sells, or distributes cannabis, CBD, or hemp.
Financial institutions that offer services to cannabis companies face a challenging contradiction between federal and state laws: While marijuana is legal in some states, it is still illegal at the national level. Banks are generally prohibited from providing financial services to clients that engage in activities that violate federal law, including the manufacture and sale of cannabis products.
This creates a gray area that has caused confusion for banks looking to offer financial services to the industry while complying with federal laws. The ABA (American Bankers Association) has voiced its support for a safe harbor for banks that serve state-legal marijuana businesses. The association also supports a regulatory approach that would allow banks to provide essential banking services to these businesses while protecting individual privacy and confidentiality.
What are the current regulations around cannabis banking?
The current regulations around cannabis banking result from federal and state laws that clash with one another. Federal law makes it illegal to manufacture, distribute, or sell marijuana, while state laws allow for the medical use or recreational use of marijuana. Because of this legal discrepancy, banks are hesitant to offer services to businesses that deal with cannabis because they fear they will run afoul of federal law.
However, despite these challenges, there have been some progressions in recent years toward finding solutions that allow financial institutions to provide banking services for cannabis businesses without violating federal law.
Some states have passed laws that allow financial institutions to serve businesses in the cannabis industry, and the safe banking act would expand upon these protections by removing the threat of federal prosecution if a financial institution provides services to legal cannabis businesses. The safe banking act would also make it easier for individuals in the cannabis industry to open bank accounts and get loans, which could help them grow their businesses.
What cannabis banking products and services are offered by financial institutions?
Cannabis banking is a big issue for the cannabis industry. This is because most banks don’t want to provide services to businesses selling marijuana because it’s still illegal at a federal level. This leaves many cannabis businesses without access to essential financial services like checking accounts, credit cards, and cash management services.
The good news is that some financial institutions have found ways around these restrictions by working with state governments and other organizations, such as credit unions or community banks, to offer these types of services.
This that an increasing amount of cannabis-related businesses are gaining access to services such as:
- Checking accounts
- Debit cards
- Cash Management and Treasury Services
- Compliance Services
- Line of Credit, REL, or Mortgage
Why is cannabis banking important for financial institutions?
The cannabis industry is proliferating, and the need for financial services is increasing. However, due to federal regulations, cannabis companies do not have access to traditional banking services and are forced to operate on a cash-only basis. As a result, many businesses have difficulty managing their finances and paying their employees.
The current regulations around cannabis banking are confusing and can be challenging to understand. This confusion has led some states to begin implementing their state-level banking systems to provide financial services for cannabis businesses.
While cannabis banking is a relatively new concept, financial institutions need to understand the risks involved in managing accounts for the cannabis industry. Financial institutions that choose not to provide banking services could face fines and fees from federal regulators if they don’t have adequate records of transactions.
BankersHub Cannabis Banking Certification
Cannabis banking is a hot topic, and it’s essential to understand how this industry works. As the legal cannabis industry grows and becomes more mainstream, financial institutions will have more opportunities to enter the space and serve this market.
This course includes:
- An overview of cannabis banking regulations and requirements
- A discussion of key risks associated with servicing the marijuana industry
- A look into best practices when working with cannabis companies
To prepare for these opportunities and help banks enter the space successfully, BankersHub has created a cannabis banking certification program that covers everything from basic definitions to risk management practices. The course is designed for both senior and junior bankers who want to learn about the cannabis industry and how it impacts banking.
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