FAQs: How to Get a Bank Account for Your Cannabis Business
The very real challenges the cannabis industry faces when trying to access financial services has led to a misconception that cannabis-related businesses (CRBs) simply can’t get bank accounts. While it’s true that many financial institutions (FIs) aren’t yet ready to bank the industry, a growing number of banks and credit unions are. To help cannabis businesses better understand the banking landscape, why finding proper financial services is difficult, and what can be expected from a banking relationship, here are answers to frequently asked questions around cannabis banking.
Why is it hard to get a bank account?
Cannabis banking is risky for FIs, and bankers are committed to avoiding unnecessary risk. FIs have historically taken pains to keep funds typically associated with illegal activity out of their banks, so FIs are sensitive to the conflict between state and federal cannabis law. For instance, many FIs are regulated by federal agencies, and on the federal level, marijuana is a Schedule I Controlled Substance.
The decision to bank cannabis businesses often takes a while for progressive FIs to shift their culture away from seeing cannabis-related businesses (CRBs) as an unnecessary risk. There are, however, many banks and credit unions out there that have taken on that risk for a variety of reasons: to minimize the risk of cash management at CRBs, to build new revenue streams, and to support the transparency that goes along with bringing cannabis banking out into the open.
How can I find a cannabis-friendly financial institution?
With very few exceptions, FIs are discreet about their cannabis banking programs. Most won’t issue press releases or advertise these programs on their websites (though that has started to change over the past year). While CRB owners may think there are no options available, there is an increase in community banks, like Dedham Savings, that are welcoming CRB customers through their cannabis banking programs.
What kind of financial institution should I be looking for?
First, don’t waste your time reaching out to the big national banks. Yes, you may have a friend who is actively banking with one of them, but those are exceptions to the rule and are likely unsustainable relationships. Once one of those banks learns the true nature of their businesses, they will “derisk” them — FI code for “close the account.”
Look for community banks and regional banks. For Massachusetts-based CRBs, Dedham Savings, a community bank, could be the perfect financial partner for your business because of our specialized cannabis banking services.
What kind of products and services can I expect?
The pioneering FIs that first took on the risk of banking the cannabis industry were exceedingly cautious, and it was relatively unusual for them to offer a CRB more than a standard small business depository account, i.e., a place to store cash but little else. We are now moving into a new phase of cannabis banking in which financial institutions offer more than just a place to park cash. Some are offering additional services, so it’s worth looking around to see what’s available out there.
You might find the new range of services surprising and comparable to business services for non-cannabis businesses. For example, Dedham Savings offers a variety of product and services designed for CRBs, such as specially trained cannabis banking professionals and secure cash management and deposit account services.
What should I bring to a meeting with a bank?
Every action taken by banks of any shape or size is heavily scrutinized by state and federal banking regulators and law enforcement agencies to ensure that FIs are only banking state-legal, legitimate CRBs. Therefore, you can expect an FI to ask for some combination of the following:
- Driver’s license or other acceptable state-issued identification for all account holders
- Information about all beneficial owners of the business — not just those that own a percentage of the business above a certain percentage threshold (like 20%)
- Previous years’ tax returns for both the business and the beneficial owners
- Financial information like profit and loss statements and capitalization tables
- A copy of any required state licenses
- Operational data like expected annual sales and patient/customer counts
- Business formation documents like articles of incorporation and a business plan
- Sales transaction data (point of sale reports or invoices) for the past thirty days
Expect an FI to ask a CRB for more information than they would ask of another small business. They need to be sure that the business is operating legally. If it turns out later that a CRB isn’t following state law, the FI can get into significant trouble for failing to vet the business properly. This isn’t a risk they’re willing to take.
Why do I have to pay more for a cannabis bank account?
Behind the scenes of cannabis banking, FIs need to do a lot to make sure that they’re only banking state legal CRBs, from collecting and reviewing point-of-sale transactions to meeting rigorous federal and state reporting obligations specific to marijuana related businesses. This means FIs often need to hire additional staff to meet their compliance obligations and invest in software to automate some of their monitoring requirements. FIs make a big investment in banking cannabis, and account fees help them offset these expenses. This means that you can expect to pay an account application fee and a monthly account maintenance fee to help cover these costs. Prices have certainly come down over the past few years. Gone are the days of paying $5,000 a month for a simple deposit account, but fees will remain significant as long as there is a significant monitoring and reporting burden placed on FIs.
Are all cannabis businesses charged the same fees?
Fees vary from FI to FI and from CRB to CRB. If there is any kind of tiered pricing model in place, then Direct CRBs like dispensaries will typically be charged the most while Indirect CRBs like hydroponics suppliers may be charged less. Any business that touches the plant presents the highest risk and will likely pay the highest fees.
I’ve already got a bank account, and they don’t know I’m a CRB, so I don’t pay those fees. Why should I switch to an FI that banks cannabis?
FIs are becoming far more savvy about detecting CRB activity within their existing customer/member accounts. At this point, it’s not a question of “if” your FI will find out you’re a CRB, it’s a question of “when.” Few things are as disruptive to a business as getting a letter from your FI informing you that your account will be closed in thirty days. Don’t put yourself in that position! Additionally, you may be missing out on vital financial and business services by staying “under the radar” and not maintaining a transparent relationship with your bank or credit union. It’s important to get accurate advice in this ever-changing industry from a financial team of cannabis industry experts. As competition within the cannabis industry is increasing, you want to be sure you’re positioned for growth and success.
At Dedham Savings, we’re here for you. We’re more than prepared to be your financial partner with our team of cannabis banking experts and our specialized CRB products and services. Start your journey with us today.
This article was written in collaboration with our partners at Green Check Verified.
Dedham Savings is Member FDIC, Member DIF.