How many banks are involved in the cannabis industry? There are fewer than you think.

March 3, 2024
compliant credit card payment processing for cannabis dispensaries

How many banks are involved in the cannabis industry? There are fewer than you think.

Banking services are crucial for running a successful business, but the cannabis industry has been unfairly excluded for a long time. As more states legalize marijuana, business owners face difficulty getting essential services like business checking accounts, leading to reliance on cash transactions.

Various cannabis banking myths explain why financial institutions are wary of working with this industry. The idea that roughly 700 banks are willing to defy the trend is one of the most popular. While banks are ready to cooperate with the cannabis business, the number isn't huge.

Why aren't banks interested in collaborating with the cannabis industry?

Many people believe that banks are reluctant to provide financial services to the cannabis sector due to concerns about violating federal narcotics laws. Banks are thought to be steering away from such a "high risk" industry by doing business with a company that deals with a Schedule I substance.

Cannabis is classified as a Schedule I narcotic under the Controlled Substances Act, which means it is considered illegal and has no recognized medicinal use, a lack of recognized safety for medical use, and a high potential for misuse. Although this belief has been proven false, many people still think that banks don't work with the cannabis industry because of categorization.

Due to years of anti-cannabis propaganda, most US banks refuse to work with the cannabis industry.Lenders have decided to stay out of the cannabis business due to past negative perceptions and allegations of it being a gateway drug.

Banks that have partnered with the cannabis industry have not faced any legal consequences, even though they often say they want to avoid federal punishment. The US Department of Justice has stated that it will not prosecute businesses or individuals who comply with state laws. Some people refuse to support the cannabis sector because it is still illegal at the federal level.

Most of the concern comes from the fear of the federal government taking action, but it is actually the banking system, not Congress, that decides to allow banks to work with the cannabis industry. Banks don't need to wait for federal legalization of cannabis because there are already regulations and precedents set by federal agencies for control and enforcement. Sprout Processing collaborates with cannabis-friendly banks and offers compliant credit card payment processing for dispensaries.

Is it true that 700 banks are eager to collaborate with the cannabis industry?

Another incorrect talking point is the claim that there are over 700 banks prepared to engage with the cannabis sector. While that amount seems appealing, it is not correct.

The large amount is not accurate and comes from a distorted figure mentioned in a September 2017 communication from the Financial Crimes Enforcement Network of the US Treasury (FinCEN). More than 700 banks filed marijuana-related suspicious activity reports, according to the document (SARs). SARs are often submitted when dealing with businesses that do not comply with the agency's requirements, as required by the Bank Secrecy Act (BSA).

While the initial figure of 700 reports was correct, nearly half of them were SARs "terminated for marijuana," which means the bank discovered a cannabis-related business and canceled the account as a result. Others faced similar situations, like when a bank finds out about a lease for a licensed dispensary in a commercial real estate portfolio.

A firm that is not directly involved in producing cannabis but has some connection to the sector may cause a bank to file a SAR as a precaution. While this is legal, it does not imply that the bank actively supports the cannabis industry. This occurs regularly, which is concerning. Book a demo to learn more about our debit and credit card processing.

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