The Banking Conundrum - How To Bank When Banks Won't Open an Account for a Cannabis Businesses?

The Banking Conundrum: How to Bank When Banks Won't Open an Account for Cannabis Businesses

by Lateef Bell

July 29, 2022

Since states began legalizing cannabis, the practical question has loomed: what do these now legitimate cannabis businesses do with their cash? On the federal level, cannabis is still classified as a Schedule 1 substance (a drug or other substance that has a high chance of being abused or causing addiction and has no FDA-approved medical use in the United States). All national retail banking institutions are subject to federal regulations. These retail banks have acquiesced to federal jurisdiction by providing Federal Deposit Insurance (FDIC) to its customers, thereby certifying the deposits that are made into the bank. This protection, up to $5,000,000.00, gives comfort to retail bank customers that their deposits are covered by the federal government. 

As such, retail banks cannot accept deposits from businesses that are federally prohibited (cannabis). As a result, many cannabis businesses are forced to keep large amounts of cash which creates numerous problems. Moreover, it creates a boondoggle between federal and state regulators. Cannabis business are forced to enact very expensive security measures to keep their cash secure.  For example, in Colorado, dispensaries are required to have their money and their product locked up in a safe. If the product requires refrigeration, then that storage must also be a safe.  Nevertheless, in 2019 there were 219 crimes at Denver cannabis dispensaries with burglaries making up 57% of those crimes, according to Eric Escudero of the Denver Department of Excise & Licenses. 

To remedy this, Rep. Ed Perlmutter (D-CO) proposed the SAFE Banking Act which will provide a safe harbor to banks working with cannabis companies. The bill prohibits federal banking regulators from penalizing a depository institution for providing banking services to a legitimate cannabis-related business. This is an important step in remedying a serious problem for cannabis businesses. There are currently 39 states that have legalized either medicinal or recreational cannabis.  The passage of the SAFE Banking Act will not only provide cannabis companies access to retail depositories, but it will significantly reduce the opportunity for cannabis companies to be robbed by criminals. According to Rep. Perlmutter: 

“This will strengthen the security of our financial system in our country by keeping bad actors like foreign cartels out of the cannabis industry. But most importantly, this amendment will reduce the risk of violent crime in our communities… by dealing in all cash, these businesses and their employees become targets for robberies, assaults, burglaries and more."

If this legislation does not become law, then cannabis companies will continue to have to implement expensive security measures. As the market in New York opens, this will become especially challenging. First, the security expense in New York will most likely be the most expensive in the country. Hiring armed security guards to protect inventory and cash is the logical choice, but in New York, licensed, bonded, and armed security can cost up to $1,000 per hour. Further, logistically, the dense proximity of businesses would make keeping product and cash safe is a security nightmare.  New York is poised to become the largest cannabis market in New York. As such, it is imperative that the SAFE Banking Act moves forward so that cannabis companies can effectively protect their product and cash.