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

February 18, 2022
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 one of the most important aspects of running a successful business, but the cannabis industry has long been unfairly excluded. While the sector grows as more states legalize adult use or medical marijuana, cannabis-based business owners and entrepreneurs struggle with essential services like business checking accounts, requiring many to rely 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?

One of the most common misconceptions about the cannabis sector and banking solutions is that financial institutions don't want to break the federal government's narcotics regulations. 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 an illegal Schedule I narcotic under the Controlled Substances Act (CSA), which means it has "no currently acknowledged medicinal use in the United States, a lack of recognized safety for use under medical supervision, and a significant potential for misuse." While that assertion has since been debunked, most individuals believe that categorization is why banks refuse to cooperate with the cannabis sector.

In actuality, due to nearly a century of anti-cannabis propaganda, the vast majority of banks in the United States refuse to cooperate with the cannabis sector. After years of "reefer madness" and allegations that cannabis is a "gateway drug," all types of lenders have decided to stay out of business.

While banks frequently claim they want to avoid federal punishment, no bank that has worked with the cannabis business has ever faced legal consequences as a result of doing so. In reality, the US Department of Justice has previously said that it has no plans to prosecute businesses or individuals that follow state laws. Many people use the fact that cannabis is still illegal at the federal level to justify their decision not to support the cannabis sector as a whole.

While most of the worry is based on the possibility of retaliation from the federal government, the decision to enable banks to service the cannabis sector is made by the banking system itself, not by Congress. Bankers have no reason to wait until cannabis is legalized on the federal level, especially since federal agencies have already created regulatory advice and precedents in terms of 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.

While the amount appears impressive, it is simply a distortion of a figure referenced 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 arose from similar circumstances, such as when a bank discovers a lease to a licensed dispensary in a commercial real estate portfolio.

An ancillary firm that never touches the plant but has a tangential relationship to the cannabis sector, for example, may prompt 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 cad processing

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