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The Rough Notes Company Inc.



July 29
07:31 2020


Essential businesses left hanging as a result of federal regulations

By Joe Foley

Marijuana is legal in 33 states and the District of Columbia. The relatively new cannabis industry has attracted entrepreneurial-minded business owners and investors to the U.S. market from all over the world.

This year, the COVID-19 pandemic has had a staggering effect on worldwide economies, all of which have experienced varied levels of distress. During the pandemic, cannabis was deemed “essential” in many jurisdictions and, as such, many cannabis retailers were allowed to remain open during government-sanctioned closures.

The overwhelming victory of being deemed essential was overshadowed by an ineligibility to receive federal aid. Due to the continued federal illegal-ity of cannabis, business owners are not eligible to apply for or receive relief from federal assistance programs. Furthermore, legal cannabis businesses have limited access to banking and traditional debt financing, underscoring a key challenge for businesses in the cannabis industry.

While solutions are sparse, there is some banking access available at the state level. Smaller regional and local banks, as well as credit unions, are options cannabis operators are finding increasingly available.

Federal aid restrictions and banking challenges are not exclusive to plant-touching businesses, so many ancillary-services providers also have experienced numerous challenges.

Banking challenges

As a provider of insurance and risk management services to the cannabis and hemp industries since 2010, we serve more than 1,200 partner agents and their clients across the United States. When starting our business, Cannasure Insurance Services, company founder and CEO Patrick McManamon opened the new firm’s bank accounts at an institution he had worked with for more than a decade. The nature of the company’s operations was disclosed to the banking institution and the relationship continued unencumbered until it was no longer feasible to visit the bank several times a week or month to transfer money to our insurance carrier partners.

“We go through a pretty thorough process, making sure [cannabis companies] are licensed and all of their ducks are in a row. They need an audit trail, so all of their information is tracked.”

—Heather Smyth
Director of Marketing

When the request was made to move to an online wire-transfer platform, the bank abruptly closed all of the company’s accounts. In addition, his personal accounts and those of several family members and their businesses also were closed. The other businesses’ and family members’ accounts had no interest in Cannasure or involvement with Patrick.

This issue has come up several times for our company as we have grown over the past decade.

McManamon finds the situation nonsensical. “Banks have no problem collecting tax money for the state for taxes generated from the sale of the product, and then transferring that to the federal government,” he points out, “but they have a hard time doing business with us?”

This difficulty for cannabis businesses in making financial transactions across state borders means many companies cannot use just any bank. In addition to traditional bank regulations, each cannabis-legal state has different banking regulations. Heather Smyth, director of marketing for Wurk, a software provider for the cannabis industry, says, “I haven’t yet heard of a multi-state operator that has one bank that supports their business nationally. Each state and each municipality has such different regulations, and your reporting is different. Your tax structure is, too.”

Banking challenges do not end there. One of the other hardships is the prohibitive fee structure in financial institutions. Banking fees can range from $1,000 to $4,000 a month or, in some cases, a percentage of deposits. Some credit unions even require a $2 million minimum account balance. Stephanie Bozzuto, co-founder of Cannabis Connect Insurance, says, “You’re literally losing money just to be able to say you have banking.”

According to the Financial Crimes Enforcement Network (FinCEN) Second Quarter 2020 Marijuana Banking Update, roughly 700 institutions are currently providing banking services to marijuana-related businesses, including 525 banks and 185 credit unions. In addition to limited access to banking services, there are often long waiting lists to connect with institutions that do accept cannabis clients. This is commonplace in states where cannabis is fully legal, like California and Colorado.

Sometimes, it is easier to secure a banking relationship in a smaller market. According to Smyth, “In states like Missouri we’re seeing credit unions and local financial banks supporting the industry. They can get in on the ground floor, and the potential for being overwhelmed is less.”

Federal illegality means greater compliance oversight, which can be a burden for small banks. They are required by FinCEN to file a suspicious activity report (SAR) for every transaction with a cannabis-related company, and this is a significant use of administrative resources. Smyth says, “We go through a pretty thorough process, making sure [cannabis companies] are licensed and all of their ducks are in a row. They need an audit trail, so all of their information is tracked.”

Legislation and outlook

A burgeoning reform effort has been building momentum at the federal level, with multiple legislative initiatives ongoing in Congress. The House passed the Secure and Fair Enforcement (SAFE) Banking Act in September 2019. The measure has since stalled in the Senate following the onset of the COVID-19 crisis; however, conversations continue in the Senate Banking Committee. The SAFE Banking Act would prohibit federal banking regulators from taking punitive action against a financial institution solely because it provides services to a state-legal cannabis business.

Other bills being proposed include the Health and Economic Recovery Omnibus Emergency Solutions (HEROES) Act of 2020, which provides emergency aid and banking reform to legal cannabis businesses; the Marijuana Opportunity Reinvestment and Expungement Act of 2019 (MORE Act); and the Strengthening the Tenth Amendment Through Entrusting States Act (STATES Act).

Until there is significant legislative relief, cannabis-related businesses will be forced to navigate the complicated and indiscriminately enforced banking landscape.

While challenges are vast, the industry is realizing notable improvements. In Massachusetts, for example, before a cannabis business can secure a license, it must be accepted by a banking institution. Reports indicate these relationships are becoming easier to find. According to Kobie Evans, owner of Pure Oasis, a cannabis retail shop in Boston, “There seem to be a lot of banking options these days. [Our account] was actually easy to open.”

Pure Oasis was looted in June 2020 during the civil unrest that arose after the death of George Floyd. Having a bank and insurance coverage kept them in business. “They didn’t even touch our registers or try to get into our safe. We take debit cards, so the product was more of a target,” Evans notes.

While banking will not solve every problem faced by the legalized cannabis industry, it clearly makes operations more efficient and helps to mitigate losses due to catastrophic events.

The author

Joe Foley serves as chief financial officer of Cannasure Insurance Services, LLC. His responsibilities include oversight of corporate financial operations, strategic M&A and IT initiatives, forecasting and investor relations. For more information, visit

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