The cannabis industry has been the subject of much debate in the past few years, as states across the country legalize the substance for medical and recreational purposes. This has created a unique challenge for U.S. banks and financial institutions: how to support and regulate cannabis-related transactions without breaking federal laws that still classify cannabis as a Schedule 1 Controlled Substance. This challenge has created a “cannabis banking crisis” in which cannabis businesses must either self-finance (at risk of criminal prosecution) or conduct their transactions on a cash-only basis with no access to traditional banking and financial services.
The complexity of cannabis banking stems from the fact that any institution that works with cannabis-related businesses could be violating federal law. As such, many traditional banks are hesitant to work with them for fear of crackdowns and criminal charges. Furthermore, financial institutions processing deposits from cannabis businesses may be in violation of the Bank Secrecy Act (BSA), which requires banks and other financial services to report any suspicious transactions and money laundering. This compliance burden is the main impediment to cannabis banking, as many banks are unwilling to risk a violation of these regulations. The consequences of this lack of access to banking and financial services are vast. Most notably, as cannabis businesses must conduct their transactions on a cash-only basis, it makes them a target for armed robberies and black market activities.
At the federal level, lawmakers are also looking at possible solutions, such as amending the BSA to create exemptions for banks to process cannabis transactions. While it may take some time for a comprehensive solution to the cannabis banking problem to be put into place, it is clear that something must be done. Reaching a viable solution to this dilemma would help the cannabis industry flourish, create jobs and generate tax dollars, while also protecting banks and federal regulators from potential violations of the law. Thus, the complexity of cannabis banking presents both a challenge and an opportunity to create better, safer banking experiences for cannabis businesses and their customers.