While efforts are underway to give legitimate cannabis businesses access to banking, many are simply denied essential banking services and have to deal exclusively in cash. This can make it very difficult for small business owners to handle typically routine tasks like tracking inventory, paying suppliers, and managing payroll. A cash-only system is also a public safety issue because it forces businesses to hold and transport large sums of cash, making them a target for crime. As Colorado State Representative Crisanta Duran notes,
“There is no doubt that having cash-only businesses… is not a safe way of doing business, and we want to do everything we can to continue to push the federal government to make the right decisions.”
The good news is that industry groups like the National Cannabis Industry Association are lobbying Congress to open up the banking system to legitimate cannabis businesses. In the meantime, Lance Ott from Guardian Data Systems, who was also a speaker at the Cannabis Business Summit, has some practical Do’s and Don’ts for cannabis businesses feeling the cash-only squeeze.
DON'T
Use offshore accounts - This counts as money laundering, directly violates the Financial Crimes Enforcement Network (FinCEN) guidance, and could result in criminal money laundering charges against the merchant, the bank, and the processor routing the funds.
Miscode merchant services applications - Oftentimes cannabis businesses are misclassified as health centers, restaurants, or flower shops. It’s important to note that this is a big red flag for banks as well as a violation of the FinCEN guidance. Once the mistake has been discovered, a merchant’s funds can be held indefinitely and the merchant can be added to the terminated merchant file, making it basically impossible to ever open a merchant services account again without the help of a good (and expensive) attorney.
DO
Keep your cash separate from cannabis - Cashless ATMs, which allow customers to use PIN-based debit cards to pay directly instead of withdrawing cash, are one alternative to cash-only purchases or traditional credit-card processing. Ott notes that this is more of a band-aid solution but is much better than running a cash-only operation or miscoding a merchant services application in the process of trying to get a credit-card processing account.
Work with a qualified financial professional - There are new groups emerging every day to serve the cannabis industry. Ott recommends doing your own research and due diligence. Work with a trusted advisor who has real-world experience in the industry and cares about the issues facing the community.
To learn more, please consider attending one of the many events that are part of the Cannabis Business Summit. Learn more at http://cannabisbusinesssummit.com
