The cannabis industry is booming, and legalization continues to spread across the United States. However, this growth presents a unique challenge for financial institutions. Both CBD and marijuana are derived from the cannabis plant, but their legal and banking statuses differ significantly. This article explores the distinctions between CBD banking and marijuana banking, helping you understand the complexities of this evolving financial landscape.
What is CBD Banking?
CBD, or cannabidiol, is a non-psychoactive compound found in the cannabis plant. Unlike THC, the psychoactive component in marijuana, CBD does not produce a “high.” The 2018 Farm Bill removed hemp, a cannabis variety with low THC content, from the federal Controlled Substances Act. This opened the door for hemp-derived CBD products, such as oils, edibles, and topicals, to be legally produced and sold in most states.
CBD banking caters to businesses involved in the legal production, processing, and sale of hemp-derived CBD products. Banks that offer CBD banking services provide traditional financial services like checking accounts, loans, and merchant processing to these businesses.
What is Marijuana Banking?
Marijuana remains a Schedule I controlled substance under federal law, meaning it has a high potential for abuse and no currently accepted medical use. However, many states have legalized marijuana for either medical or recreational use.
Marijuana banking refers to financial services offered to businesses operating in the legal marijuana industry within their respective states. Due to the federal classification, marijuana banking presents a greater challenge for financial institutions. Banks that choose to participate in marijuana banking must comply with strict federal regulations, including the FinCEN guidance issued in 2014. This guidance outlines procedures for banks working with marijuana-related businesses (MRBs) to mitigate potential money laundering and other risks.
Key Differences Between CBD Banking and Marijuana Banking
Here’s a breakdown of the key differences between CBD banking and marijuana banking:
Legality
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CBD Banking: Hemp-derived CBD products are legal at the federal level under the 2018 Farm Bill, as long as they contain less than 0.3% THC.
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Marijuana Banking: Marijuana remains illegal under federal law, regardless of state legalization.
Risk
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CBD Banking: CBD banking carries lower risk for financial institutions due to the legal status of hemp-derived CBD.
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Marijuana Banking: Marijuana banking comes with higher risk due to the federal illegality of marijuana. Banks face potential penalties for violating federal regulations when working with MRBs.
Regulations
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CBD Banking: CBD banking has fewer regulatory hurdles compared to marijuana banking. Banks still need to comply with Anti-Money Laundering (AML) and Know Your Customer (KYC) regulations.
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Marijuana Banking: Marijuana banking requires strict adherence to FinCEN guidance and additional security measures to mitigate risks associated with federally illegal activity.
Availability
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CBD Banking: More financial institutions are willing to offer CBD banking services due to the lower legal and regulatory risks.
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Marijuana Banking: Fewer banks are comfortable entering the marijuana banking space due to the high-risk environment. Those that have ventured into this space tend to be smaller, local credit unions and banks rather than the large bank chains.
Future Outlook
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CBD Banking: As the CBD market matures and regulations evolve, CBD banking is expected to become more streamlined and accessible.
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Marijuana Banking: Federal legalization of marijuana would significantly impact marijuana banking, making it a more attractive market for financial institutions. Steps in this direction have already started to be taken with the SAFE Banking Act, and subsequently the SAFER Banking Act, as well as the proposed rescheduling of marijuana to fall under the schedule III category as per DEA regulations. Should these ventures prove successful, they would be crucial first steps towards a more regulated industry, inviting more financial institutions to enter this space.
Learn More About CBD and Marijuana Banking with the ACB
The Association for Cannabis Banking (ACB) provides resources and information for banks considering entering the CBD and marijuana banking space.
Understanding the distinctions between CBD banking and marijuana banking is crucial both for businesses operating in the cannabis industry, as well as those banking, or looking to bank, CRBs. By knowing the legal and regulatory landscape, banks can understand what is needed when opening CRB accounts and successfully advertise those services, and therefore CRBs can make informed decisions about choosing financial service providers.