GUEST BLOG from Dama Financial
Cannabis is legal in most states but remains illegal at the federal level. This legal divide presents enough uncertainty to dissuade federally regulated financial institutions from taking on the risks associated with servicing the cannabis industry. As such, cannabis banking has landed itself in a gray area, leading to the spread of misinformation.
We’ve listed the truth behind some of the most common cannabis banking myths.
Myth 1: It is illegal for banks to serve cannabis businesses because cannabis is illegal under federal law.
The Controlled Substances Act (“CSA”) makes it illegal under federal law to manufacture, distribute, or dispense cannabis. However, 10 states plus Washington D.C. have fully legalized marijuana and 33 states have legalized it for medical uses.
In 2014, the U.S. Treasury acknowledged banking relationships between financial institutions and legal cannabis-related businesses (CRBs) through its release of FinCen guidance. The guidance stated that serving CRBs was a risk-based decision, and expressed that thorough customer due-diligence is a critical aspect of making an assessment and whether a CRB implicates the Cole Memo priorities or violates state law.
A financial institution can legally transact with a CRB if the institution establishes and maintains an effective compliance program that adheres to the FinCen guidance.
Myth 2: CRBs can qualify for traditional business banking and payment processing services if they hide their marijuana-related activity with a shell company and limit their cash deposits.
Some CRBs have access to banking through federal and state-chartered banks and credit card processing by not disclosing they are a cannabis-related business. However, banks and payment processing companies perform frequent audits of their portfolio and have been known to identify cannabis-related businesses and promptly close the bank account and request their funds be withdrawn.
While access to cannabis-friendly banking has historically been a challenge for small and multi-state operators alike, it is best practice to partner with a financial institution that understands the nature of the business being conducted.
Myth 3: Transparent cannabis banking is expensive.
Compared to traditional business banking, this is true. Banks that follow FinCEN guidance to serve cannabis-related businesses must invest in extensive due diligence and regulatory compliance technology and processes, and human capital which gets passed on to their banking clients.
Banks and credit unions which advertise a low fee for servicing cannabis-related businesses may not be fully following FinCEN guidance, charge excessive transactional fees in addition to a monthly fee, or may limit the banking services available to their CRB customers.
Compared to 5% – 8% average credit card transaction fee for high-risk merchants, Dama Clients feel a 2% fee on deposits into a Dama-managed FDIC-insured business bank account is reasonable to keep their cash safe, access convenient online banking and receive support from a dedicated Relationship Manager. Dama Clients can also invest their excess funds in a secondary 1% interest-earning account.
Myth 4: Operating my cannabis business with only cash is lower cost than banking or accepting electronic payments.
Often overlooked is the cumulative cost of operating a cash-intensive business, which has been estimated to be 5 – 15% of receipts. Not only are these businesses targets for criminal activity but roughly 90% of financial loss in the marijuana industry can be chalked up to employee theft. Dama Financial’s armored cash courier partners carry adequate insurance that covers cash picked until it is deposited into their account. Dama’s bank partners provide up to $250,000 FDIC-insurance on each account. Keeping low amounts of cash on hand reduces vulnerabilities to burglaries and violence against their employees, customers, and their community.
For more information about Cannabis Banking and Payment Processing, call (877) 401-3262 or schedule a consultation.