Cash may be king, but dealing exclusively in cash certainly makes you feel less than royal. From gathering cash, to counting cash, to paying your bills in cash, there's a reason why modern businesses rely on banks and credit for all money matters. However, the cannabis industry remains under strict federal restrictions—meaning they lack access to the banking services that other businesses enjoy. So, what are the rules regarding dispensaries and banks, and how can cannabis industry professionals gain access to credit?
Banks are perhaps the most risk-averse institutions in the world, always in search of steady clients but never willing to give out financing that they believe they will not see back. One of the biggest aspects of banking risk is federal regulations, since the government specifically states where banks can and cannot lend out money.
While cannabis is legal, medically or recreationally, in many states, it remains federally illegal. As a Schedule 1 narcotic, banks are prohibited from funding cannabis businesses lest they be charged with aiding and abetting a federal crime. Worse still, banking services for cannabis businesses can be specifically charged with money laundering.
This often leaves many dispensary owners, as well as other business owners in the cannabis industry a bit frustrated and concerned. As a 21st century business, operating solely as a cash-based business makes many things difficult, like maintaining security or taxes.
Passage of the Safe and Fair Enforcement Act (SAFE) may open many new doors for the cannabis industry by easing on the federal regulations regarding banking. The first cannabis-specific bill passed at the federal level, the SAFE Act was originally introduced in 2019 but failed to make it through the Senate. Upon reintroduction in 2021, the law would make it possible for banks to provide financial services to cannabis industry clients without risk of legal penalties.
While it still needs to be ratified by the Senate and then signed into law, the passage of this act would have drastic changes on banks, protecting them from both criminal and civil charges. Furthermore, the SAFE Act would take the major step forward of not just legalizing lending to cannabis businesses but also legalizing insurance coverage, meaning that dispensaries would not be liable for commercial losses that can devastate a business' health.
Even without passage of the SAFE Act by the U.S. Senate, some banks are taking the risk to provide lending to cannabis businesses. Smaller credit unions have traditionally been the only source of relief for dispensaries, because they have more to gain by taking a chance and are less likely to be investigated by federal authorities. Even so, banking for cannabis businesses often involves major feeds meant to cover the extra costs of the process, as there is a great deal of paperwork needed for processing.
Laws at the state level are moving much faster than laws at the federal level. For example, in 2020 the state of Colorado changed the lending statues so that banks could provide cannabis industry businesses with funding. As a result, it is now legal in some parts of Colorado to not just get a bank loan for a dispensary, but to have customers pay with credit cards instead of cash.
Bank accounts are crucial for businesses to manage cash and survive lean periods. A business checking and savings account makes it easy to record and study your operating income and expenses, while also getting interest for your money on hand. Banks make it easier to collect cash for processing, furthermore, including armored courier pickup and deposits. A bank will streamline expenses, allowing an owner to automate the payments for everything from employee paychecks to utility bills to taxes.
Banks provide more services than just money, furthermore. With 24/7 account access from a computer or a smartphone app, business owners are able to take care of spending issues as they arise, instead of waiting for the cash to accumulate. Furthermore, an account manager at a bank will be able to help an owner understand their money management, suggest areas for improvement, and plan how to best put capital to use. Finally, all banks are FDIC insured, meaning that up to $250,000 in an account is covered against losses such as theft—something that no amount of cash will ever be covered against.
The banking process is difficult for any business owner to manage, especially if their business is cannabis, and they have mountains of red tape to get through. The team at CannaBusiness Financing specializes in aiding business owners when it comes to securing bank accounts for their growing businesses. Contact our team today to get started.
Posted by Canna Business TeamFacebook
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