Banking and cannabis: Best buds or up in smoke?

No business can operate without funding or working with some type of financial institution. For cannabis-related businesses, however, this aspect of their operations can be challenging since cannabis is considered illegal at the federal level and banks are federally regulated. This can preclude cannabis-based businesses from using credit cards or depositing funds in many banking institutions.

To circumvent this issue, many cannabis companies are cash-based, but there are still stringent requirements to follow when serving these entities.

ALM Global recently released the sixth course in its Cannabis Insurance Coverage Specialist (CICS) designation, Banking and Cannabis: Best Buds or Up in Smoke?, which addresses a number of financial factors affecting legalized cannabis and cannabis-related businesses.

The course explains these issues as well as the impact of the proposed SAFE Banking Act, federal and state banking regulations, and recent legislation changes, and identifies what a strong banking program for cannabis entities should include.

One of the primary contributors to this module was Green Check Verified, a banking compliance software and consultancy that operates in the cannabis space. In the latest Insurance Speak podcast, Peter Su, a senior vice president with Green Check, discusses some of the issues financial entities face when serving cannabis-related businesses. Su is a long-time banker and has spent more than 20 years in finance and has personally spearheaded two separate cannabis banking programs. A U.S. Army veteran who transitioned into the financial realm, in his current role Su is responsible for the growth of over 100 cannabis banking programs all over the country.

Su currently chairs the Banking and Financial Services Committee for the NYCCIA & HVCIA, is vice chair of the cannabis banking committee for ASTM Int’l, serves on the executive board of the Asian Cannabis Roundtable as their treasurer; and is an advisory council member for the Minority Cannabis Academy. In addition, he has been featured in Bloomberg, American Banker, Newsday, Rolling Stone, and other publications.

An important aspect of dealing with cannabis businesses is to understand what products an entity is growing, manufacturing or selling. There are very specific regulations and issues involved depending on whether the product is cannabis, hemp or marijuana. “Many financial entities are grappling with this difference,” explains Su. “Hemp is legal, but marijuana is still a Schedule 1 substance even though they come from the same plant. The THC levels define the difference.”

Su also discusses several proposed federal regulations such as the SAFE Act and MORE Act and their possible implications on the cannabis and banking industries, although nothing proposed at this point has received much legislative support.

Another finance-related challenge for cannabis-touching businesses involves how they are paid. Since major credit cards like Visa and MasterCard will not allow their networks to be used for the purchase of these products, consumers have chosen to make cash-based purchases instead of using a payment app like Dutchie, Hypur, Linx or CanPay. “Customers prefer cash to cashless apps,” observes Su.

To learn more about the regulations financial entities must adhere to when working with cannabis businesses, what cannabis-adjacent businesses need to report and other financing complexities for these entities, listen to the podcast above or subscribe to Insurance Speak on Spotify, Apple Music or Libsyn.

Related:

6 keys to ensure cannabis businesses are properly insured

ALM launches new course focusing on workers’ compensation issues for cannabis businesses

Cannabis financing: How to secure capital in a cash-only industry