Given the proliferation of marijuana dispensaries in Florida since smokable medical marijuana was legalized in 2019, it’s often assumed that operating a successful cannabis business is as easy as opening the doors. In reality, the cannabis industry deals with a number of hurdles that other businesses rarely encounter. And the most prominent of those barriers is the lack of banking options.
“Because cannabis is not a federally approved product, we are not allowed to do banking in most of the financial institutions across the country,” says Dennis Oils, CFO for Cresco Labs, parent company of Sunnyside medical cannabis dispensaries. “That includes things like credit card processing. Those transactions are not allowed in this industry anywhere in the United States because of the fact that it is not an approved substance and is not credibly approved at the government level, which would enable banks to transact with cannabis companies in a safe and insured manner.”
Though larger national banks avoid the cannabis industry, many smaller, state-chartered financial institutions have begun catering to the needs of dispensaries. However, given the lack of federal deposit insurance, banks serving the cannabis industry are doing so with additional levels of caution.
“There’s increased due diligence that transpires when we look at banking these customers,” says Chris Hartman, EVP and chief deposit officer with Cogent Bank. “So, because of that additional effort, there are more limitations in terms of options for the cannabis clients when they’re looking to find a financial partner. There are multiple steps that we have to take in terms of gathering additional information from these clients that we wouldn’t necessarily gather from other clients. That includes information about their sales activity; what kind of software they’re using to monitor their point-of-sale transactions. What payment mechanisms are they utilizing?”
Without the ability to process credit card transactions, a cannabis dispensary remains primarily a cash business. Though that creates security concerns for each dispensary, it also requires the banks that work with them to modify how they handle their deposits.
“We do not accept the (cannabis) deposits in our banking center. The armored car carrier picks up the cash from the dispensary. They’re actually validating the cash and they’re giving us the total, so we can then post that deposit to the customer’s account,” Hartman says. “We have guardrails in place and we utilize a company that helps us monitor these deposits. Most banks will have a limit in terms of the number of deposit dollars associated with (cannabis industry) customers. According to our cannabis policy, we have a percentage based on our asset size, but we are nowhere close to reaching that limit at this point in time and we are capable of modifying our policy.”
As Florida’s medical marijuana industry is still relatively young, its rules and regulations are still subject to modification. That means, as the industry continues to grow and change, financial institutions working with cannabis clients must also constantly monitor compliance, said Lindsay Larson, VP BSA/AML officer at Cogent Bank.
“Certainly one of the biggest hurdles is the ever-changing legal landscape,” Larson says. “I would say, especially for payment processing, that’s a hurdle since … the large credit card companies have taken the position to prohibit marijuana-related transactions from traveling the credit card rails, and they’ve vowed to hold that position until marijuana is federally legal. And, of course, a big issue for bankers is that there will always be a huge compliance presence in these banking relationships. We have to follow any and all guidance that’s passed down. And it certainly seems to be always subject to change.”
Ultimately, both cannabis businesses and financial institutions are cautiously optimistic that some version of the Secure and Fair Enforcement Banking Act—which would ease federal regulations on banks working in the cannabis industry—will be enacted at some point. While that would reduce the risk for banks and make it easier and more affordable for dispensaries to conduct transactions, Oils says passage of the SAFE Banking Act also would help consumers.
“We’re all going to benefit from some version of SAFE Banking passing. A company will benefit in higher revenues and profits. The amount of tax revenue that it generates will be higher,” Oils says. “People will be able to buy more product and the individual state store owners will be able to generate more profit … because they’re not paying some of these exorbitant interest rates and all these incremental fees that are required to operate in this business. That, in some form or fashion, is going to get passed along to the consumer, as well.”