The cannabis industry, despite its rapid growth and increasing mainstream acceptance, faces unique challenges compared to other businesses. Classified as a “high-risk” industry by financial institutions and payment processors, navigating the complexities of legal and financial compliance requires specialized knowledge and dedicated support. This article will explore the factors that contribute to cannabis being considered high-risk, the challenges these classifications present, and how organizations like the American Cannabis Banking Association (ACB) help businesses navigate this intricate landscape.
Understanding High-Risk Businesses
What is a High-Risk Business?
Before delving into the specifics of cannabis, let’s establish the general characteristics of “high-risk” businesses. These businesses are typically categorized as such due to concerns about increased potential for:
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Chargebacks: Disputes over product quality, legality, or fraudulent transactions.
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Financial instability: Inability to meet financial obligations or sustain operations.
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Legal compliance issues: Operating in violation of federal, state, or local regulations.
These factors lead to financial institutions perceiving them as riskier clients, resulting in limited access to banking services, higher fees, and stricter scrutiny.
Examples of High-Risk Businesses
Several industries share the label of “high-risk,” including:
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Adult entertainment: Concerns about age verification and illegal content.
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Gambling: Potential for addiction and money laundering.
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Firearms: Legal restrictions and safety concerns.
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Cryptocurrency: Volatility, anonymity, and potential for illegal activity.
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Cannabis: Federal illegality, complex regulations, and banking restrictions.
Cannabis and the High-Risk Label
The cannabis industry faces a unique combination of the above risks, specifically:
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Federal Illegality: Despite legalization in many states, cannabis remains illegal at the federal level, creating uncertainty and impeding access to traditional banking services.
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Evolving Regulations: The patchwork of state laws and constantly evolving regulations create compliance challenges for businesses.
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Cash-Based Operations: Restricted banking access forces most dispensaries to operate as cash-only businesses, increasing security risks and limiting customer convenience.
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Stigma and Misinformation: Negative perceptions and lack of public understanding can impact public support and attract unnecessary scrutiny.
Navigating the Green Maze: Challenges and Solutions
These high-risk factors present complex challenges for cannabis businesses, including:
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Limited Banking Options: Difficulty securing bank accounts, processing payments, and accessing financial services like loans and lines of credit.
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Higher Processing Fees: Reliance on alternative payment processors often results in higher transaction fees, impacting profitability.
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Cash Management Risks: Handling large sums of cash increases security concerns and potential for theft or loss.
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Compliance Burdens: Keeping up with changing regulations and ensuring legal adherence requires significant resources and expertise.
New legislation in Congress, namely the SAFER Banking Act, has the potential to address some of these risks and create a better legal framework for banks and financial institutions. One of the things this bill would do, is create safeties and safe harbor for banks so they are able to take on cannabis-related businesses with more confidence.
Another discussion happening is the rescheduling of cannabis from a schedule 1 drug to a schedule 3 drug. Under its current schedule 1 categorization, it sits alongside drugs like LSD, heroin, and peyote. Since schedule 1 drugs are thought to have a high risk of dependency and addiction, as well as no medical benefits. However, with more and more medical studies showing benefits for a myriad of chronic conditions, marijuana sits poised and ready for a rescheduling. If this were to happen, it would not immediately solve all compliance and legal issues, but it would lessen the risk associated with cannabis-related businesses.
Taking steps towards lessening the risk associated with cannabis businesses is critical for the industry to be able to thrive. With full access to banking opportunities, they would be able to get loans, open lines of credit, and use card services at their store.
Partnering for a Greener Future with The ACB as Your Guide
Navigating these challenges becomes significantly easier with the support of organizations like the ACB. Dedicated to fostering safe and inclusive financial services for the cannabis industry, the ACB offers valuable resources and support, including:
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Advocacy: Working with policymakers and regulators to advance cannabis banking reforms and create a more favorable legal environment.
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Education: Providing resources and training programs to help businesses understand complex regulations and compliance requirements.
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Industry Networking: Connecting members with financial institutions, payment processors, and other industry professionals.
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Compliance Support: Offering guidance and tools to help businesses navigate the intricate legal and financial landscape.
Joining forces with organizations like the ACB empowers cannabis businesses to navigate the complexities of being a high-risk industry, mitigate risks, and achieve sustainable growth. As the industry continues to mature and evolve, partnering with experienced advocates and leveraging their resources becomes increasingly crucial for navigating the murky waters surrounding high risk businesses and securing a brighter future.