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Q&A: The current state of cannabis banking

Despite being projected to surpass $100 billion by 2030, businesses in the emerging cannabis industry continue to be deeply underserved.

In the east German countryside, close to Dresden, a former abattoir is now home to the biggest indoor cannabis farm in Europe
In the east German countryside, close to Dresden, a former abattoir is now home to the biggest indoor cannabis farm in Europe - Copyright AFP JENS SCHLUETER
In the east German countryside, close to Dresden, a former abattoir is now home to the biggest indoor cannabis farm in Europe - Copyright AFP JENS SCHLUETER

Marijuana is now legal in some capacity in most U.S. states and the cannabis industry is projected to surpass $100 billion in the next five years. Despite this, many financial institutions remain hesitant to work with cannabis-related businesses due to its federally illegal status.

Paul Dunford, co-founder and VP of Knowledge at Green Check discusses with Digital Journal the current state of cannabis banking, the regulations at play that would impact the industry and how Green Check is bridging the gap between financial institutions and cannabis businesses.

Digital Journal: What is the current state of cannabis banking? Why are financial institutions still hesitant to work with cannabis businesses?

Paul Dunford: Despite being projected to surpass $100 billion by 2030, businesses in the emerging cannabis industry continue to be deeply underserved by financial institutions. The reluctancy is not unfounded, however, given that the industry still grapples with many legal and regulatory challenges. At the federal level, cannabis is still considered a Schedule I substance, at the same level as heroin and LSD. However, at the state level, this leaves thousands of legal cannabis-related businesses (CRBs) without the necessary financial tools to grow their businesses and contribute to their communities at their highest potential.

For many CRBs who do get access to capital, rates are often grossly inflated due to what’s known as the “green tax” – the unofficial term for the higher fees imposed on CRBs due to the perceived elevated risk of banking cannabis.

This reality is why forward-looking fintechs like Green Check equip financial institutions with the tools to confidently, compliantly and profitably serve cannabis-related businesses. Green Check works to normalize cannabis lending with financial institutions at rates that aren’t usurious – showing that these loans may actually be safer because of how much due diligence documentation cannabis businesses submit.

There’s still lots of work to do in terms of getting the cannabis industry banked at the level of other businesses, but we’re starting to see more financial institutions understand the value of working with this industry. Some are even starting to offer services beyond bank accounts, by offering loans, payroll services, business insurance and more. Green Check is here to help facilitate this industry shift.

DJ: If most financial institutions are still hesitant to bank cannabis-related businesses, how can those business owners get a proper bank account?

Dunford: Our recommendation to cannabis business owners is to look into working with credit unions, community banks or regional banks, over those large, national banks. For small business owners, looking within their own community can be much more fruitful.

Every action taken by a financial institution is heavily scrutinized by state and federal banking regulators and law enforcement agencies — and for good reason. To ensure that financial institutions are only banking legitimate CRBs, business owners should expect to have to present multiple documents during the initial meeting, which may include state-issued IDs for all account holders, information about all beneficial owners of the business, sales transaction data, profit and loss statements, business plans and more.

While this can be intensive, it’s essential that CRB owners go through the process to have a transparent relationship with their bank or credit union. Financial institutions have become quite savvy in detecting cannabis business activity among existing accounts, making it extremely risky to use an existing account at a larger institution, under the guise of a different business. In fact, it’s no longer a question of “if” the financial institution will discover the cannabis business, but “when” – and the result would be account closures.

Still, it can be difficult to find a credit union, community bank or regional bank that wants to work with cannabis businesses. That’s why Green Check launched Green Check Connect, a first-of-its-kind platform that offers cannabis businesses a centralized network of reliable, trustworthy and cost-effective service providers across financial and business needs. As a testament to the level of industry demand, Green Check Connect has grown to support more than 8,800 CRBs, connecting them with vetted providers and removing some of the stress related to having a sustainable partnership with a financial institution.

DJ: Cannabis businesses still face legal and regulatory challenges that are impeding the industry’s growth. Can you share more about those regulations and your outlooks on them?

Dunford: One bill that’s often discussed in the industry, but continues to stall in Congress, is the SAFER Banking Act, which aims to create protections for financial institutions that provide services to legal cannabis businesses. While I feel hopeful that SAFER will eventually pass, I don’t believe it’s something that people should wait for. We’ve had some version of its predecessor, the SAFE Banking Act, in Congress for over 10 years now, and it’s not yet been to a floor vote in the Senate.

It is certainly encouraging that the Senate Banking Committee actually voted in favour of it and most recently, U.S. Treasury Secretary Janet Yellen said she welcomed the legislation, but there’s still no vote scheduled. Until this passes, large, national banks might not be ready to work with cannabis businesses yet, but regional banks and credit unions will continue to serve the industry – something that’s happening already without SAFER.

In my opinion, even more impactful than the passage of SAFER would be rescheduling cannabis. As well known as SAFER is to us in the industry, it’s not very well known outside of it. Rescheduling would have bigger, sweeping impacts that would affect all Americans – including those that aren’t remotely involved in cannabis today. Recently, the U.S. Department of Health and Human Services released the documents related to its recommendation to the Drug Enforcement Administration that marijuana be recategorized as a Schedule III substance, which would mean it’s accepted for medical use, with moderate to low potential for physical and psychological dependence.

With this being an election year, rescheduling or descheduling would be an even bigger victory for lawmakers looking to appeal to the broader public, as Americans continue to favour legalization of the drug for medical and recreational purposes.

DJ: How do you see cannabis banking continuing to grow?

Dunford: Today, cannabis is legal in 38 for medical use and 24 states for recreational use. At a certain point, I have to believe that every state will legalize marijuana for adult use. Until then, we will continue to see growth based on the pace of legalization across the country. For the handful of states that don’t have any legal marijuana of any kind, including Nebraska and Wyoming, it presents new markets both to cannabis operators and financial institutions. Filling in the gaps in the legalization map is one of the biggest opportunities for the industry.

For financial institutions, we hope that more banks and credit unions will look to the multiple years of positive examples and success with working with CRBs, and more players will enter the market. This means more competition, which allows the old way of banking cannabis – essentially as just a place for CRBs to store cash — to sunset. To enter the market or stay competitive in this new landscape, financial institutions will need to expand their product and services offerings to include offerings like payroll services, business debit cards, online banking and more.

There is much room for growth in this industry, and we’re excited to see new developments. As we look ahead, Green Check will continue to support and foster the relationships between financial institutions and CRBs so that we can bridge the gap in cannabis banking, once and for all.

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Written By

Dr. Tim Sandle is Digital Journal's Editor-at-Large for science news. Tim specializes in science, technology, environmental, business, and health journalism. He is additionally a practising microbiologist; and an author. He is also interested in history, politics and current affairs.

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