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Getting a Marijuana Business Checking Account Potential Solutions

By Nicholas King and Suzanne Harank

Acquiring a business checking account continues to be a huge hurdle for most of the Cannabis Industry.

Here are some ideas we have gleaned from banking professionals that will help you establish a positive relationship with a financial institution that may enable you to get an account.

  1. Recognize the concerns of financial institutions. As noted in our last article, until marijuana is no longer classified as an illegal Schedule 1 drug under the Controlled Substance Act, financial institutions face numerous regulatory issues when it comes to accepting cannabis accounts. Financial institutions (banks, including credit unions) must figure out how they can accept your business and meet the Cole memorandum guidelines, provisions of the Bank Secrecy Act (BSA), Suspicious Activities Reports (SARs), Financial Crimes Enforcement Network (FinCEN), Anti Money Laundering (AML), and the Patriot Act, while complying with individual state rules and regulations. Understanding the bank’s concerns, and doing your best to address them, will go a long way toward building a positive relationship with your bank or credit union.
  2. Pick the right type of financial institution. Smaller community institutions that do not cross state lines are more likely to accept your application for an account. The larger regional or national institutions have more exposure to enforcement because they cross state lines. Moreover, for the regional or national institutions, the cannabis business represents such a small fraction of their overall business that the enhanced monitoring required of cannabis accounts is simply not worth the effort for them.
  3. Maintain compliance with state regulations. A basic step in demonstrating compliance is to have copies of successful state regulatory agency inspections as well as third-party compliance assessment reports. Additional measures include having a designated compliance officer or compliance company actively monitoring operations on an ongoing basis and training staff in compliance issues. Document all compliance training.
  4. Be prepared. When you go to the bank, bring with you the following documents:
    • State & local licenses — These prove your business is operating legally within your state and local governments’ requirements.
    • Federal & state tax returns — Tax returns will help the institution see you are properly reporting income from your operations.
    • Financial business records — Annual summaries of profit and loss statements and balance sheet statements will demonstrate a willingness to be transparent to your bank if they need to justify to the regulators that accepting your account will not lead to money laundering or other criminal activity.
    • Bring personal financial records — These would include tax returns and personal financial statements. Again, this demonstrates transparency.
    • Be ready to provide additional documents — The list above may not be exhaustive. The financial institution may ask for information beyond the list above. In order to fulfill “Know Your Customer” (KYC) and “Know Your Customer’s Customer” (KYCC) requirements, banks may ask for your industry receivables and payables. Remember that financial institutions have regulators they have to report to regarding your account.
    • Be open to or invite additional inspections and/or audits — Financial institutions may want on-site compliance audits by their compliance officers or a third-party. While not required by federal regulators, these audits are a way for financial institutions to demonstrate they are doing everything possible to ensure cannabis businesses are operating within the state’s regulatory program.
  5. Accept that there will be additional fees. Institutions must cover the cost of regulatory reporting requirements of the Justice, Treasury and other Federal and State departments or agencies. As cannabis accounts are still in rather uncharted territory, it is difficult for financial institutions to determine the extent of those costs at this time. Naturally these costs will be passed on to the account holder. As the institution gains experience with the industry — and your account in particular — it is likely that these costs will change and no one can be sure in which direction the change will move.
  6. Do not expect to deposit legacy cash — yet. Neither financial institutions nor federal regulators have figured out how to bring your cash into the financial system. If and when that becomes possible, expect to pay for an audit of the cash in relation to your financials. This means that if you don’t already have good financial documentation of where and how your cash was derived, you best get that in order. I believe this problem will be solved eventually, and having accurate and complete records will be your key to being able to deposit legacy cash.
  7. Be transparent. Do NOT hide the fact you are in the Cannabis Industry. Given the current uncertain climate in the financial industry, it is understandable you may want to hide the true nature of your business. Resist the temptation. Most financial institutions WANT to have your account, they just don’t know how to tell if you are one of the “good guys” and are worth the additional scrutiny and oversight required by the federal government. Don’t be like a guy in Colorado that applied for a business account who said it isn’t cannabis related but was wearing a badge identifying him as a dispensary owner. Yes, this really happened!
  8. Be courteous. Courtesy is always welcome, so even if you get turned down, remember that the account manager is following the institution’s policy. Once changes are achieved on a federal level, they are likely to be willing to accept your account and you don’t want to leave any burned bridges behind you if you fail on your first attempt.

A final note: When cannabis is finally removed from Schedule 1, don’t expect banks to automatically open their vaults for your deposits. Bank concerns about cash,Suspicious Activities Reports and Anti Money Laundering  regulations, as well as “Know Your Customer” and “Know Your Customer’s Customer” requirements will remain.

It is even possible those concerns will be heightened, especially with legacy cash, so don’t count on fees diminishing for some time to come.

Nicholas King

Nicholas King

Representing medical marijuana owner/operators, Nicholas King was a key member of the 23 person Colorado state work group that developed the first regulatory system for commercializing medical marijuana in the world. He has an intimate knowledge and perspective of the rules governing retail and medical marijuana programs. In 2010 he founded the trade association ACT4CO to include owner/operators in the developing the regulations. Nicholas was the first in the industry to provide training classes and field assessments for pioneer owner/operators to understand the rules and regulations and how to properly apply them in their facilities. Nick can be reached at [email protected]

Suzanne Harank, Co-Founder and CEO of Medical-Recreational Marijuana Systems, is a cannabis industry expert and pioneer in the field of regulatory compliance. Nicholas King, and Suzanne were the first consultants in the world to perform on-site field compliance assessments in 2011 within the regulated cannabis industry. Suzanne has testified as a compliance consultant at Marijuana Enforcement Division court hearings. She ran the day-to-day operations of a dispensary and cultivation facilities and ensured all compliance requirements were properly implemented, updated, and maintained. Sue can be reached at [email protected]

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