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The cannabis industry and cannabis business owners do face problems with securing dedicated banking services, even though; cannabis has been legalized in those states.
Due to the Schedule 1 Dangerous Drug Act that is still a part of the laws governing the federal government, many banks are reluctant to engage in doing business with cannabis business owners. In other words, there is no banking system or service that is legal. If banks that are federally chartered are caught providing services to cannabis business owners, it could result in money laundering charges.
Problems with Cash
Another problem that cannabis business owners might run into is paying their employees and having no other way for customers to pay, but by cash. It takes more employees to finish the ordinary sales transactions as well as payroll responsibilities.
The banks do not have many financial options for people who choose to do business in the cannabis industry, especially since the industry is deemed to be risky according to the feds.
The problem cannot be resolved unless cannabis business owners look to the banking side of things instead of the business side. The restricted regulations are what make it difficult for banks to do business in the cannabis industry.
The banking regulations instituted by the feds not only harms the cannabis industry, but other industries as well. However, the cannabis industry suffers the most due to the intricacies of the federal law.
In 2014, the Treasury Department announced its clear guidelines on exactly what the banking system can do and the 2013 Cole Memo introduced by the Justice Department also presented their own guidelines to banking institutions, indicating the items of compliance for cannabis business owners.
However, everything is so complex and banks are required to report suspicious activities, which allows the feds the chance to raid a cannabis dispensary, for example, that has sales of over a million dollars without embracing the fact that this is possible.
Many advocates think that this specific guideline is unnecessary for the cannabis business owners and their operation. There are banking institutions that do offer services to the cannabis industry, but they are less than thirty of them in the entire United States.
In the meantime, there are no credit card companies that offer payment processing services to cannabis business owners.
Another financial woe for cannabis business owners is taxes. Some companies have to pay their sales taxes by taking the cash to a secure location each month.
The transporting of cash could be very risky and insecure. In addition, using cash to pay taxes might mean that business owners don't file the proper paperwork, which will eventually trigger an IRS audit.
For the cannabis business owners, it is going to be important to exclude expenses directly related to making cannabis products and cost of goods sold. If you are unsure of what you should deduct, it is wise to have a tax professional advise you.
Dealing with Banking Issues for Cannabis Companies
Obtaining access to standard financial services is a major challenge for the emerging cannabis business, even with its rapid development and huge market potential.
Financial institutions are unable to lawfully service cannabis-related companies (CRBs) due to marijuana's federal status as a Schedule I prohibited substance.
Due to their inability to access mainstream financial services, CRBs face numerous difficulties that hinder their capacity to grow their enterprises, handle their funds, and run their operations effectively.
Challenges with Core Banking for Cannabis Companies
Limited Access to Bank Accounts: In order to avoid having to rely solely on cash transactions, CRBs frequently experience difficulties opening bank accounts. This cash-heavy operation makes accounting procedures and financial transparency more difficult, increases the possibility of theft and robbery, and creates security problems.
Incapacity to Process Payments by Conventional Methods: CRBs are limited in their payment alternatives and the convenience they offer to customers because they are not able to accept credit cards, debit cards, or electronic check transfers. Opportunities for expansion and sales are hampered by this lack of access to conventional payment processing techniques.
Financing and Loans: Because cannabis is classified as an illicit substance by the federal government, CRBs have difficulty obtaining financing and loans from standard institutions. Inventory control, corporate growth, and overall financial stability are all hampered by this lack of access to money.
Expenses and operational burdens rising: Cash-only operations put CRBs under more administrative and operational strain since they require extra security measures, armored car services, and specialized accounting procedures.
Challenges in Banking Affecting Cannabis Companies
Reduced Security and Enhanced Theft Risk: CRBs that rely heavily on cash are more vulnerable to robberies, theft, and security lapses, which puts their assets and staff members' safety in danger.
Limited Financial Transparency and Compliance: Depending too much on cash transactions makes it difficult to keep correct records, track finances accurately, and comply with financial standards. This undermines accountability and transparency.
Challenges to Growth and Expansion: CRBs face obstacles in growing their operations, investing in new technology, and competing successfully in the market because they lack access to traditional banking services and funding.
Expense increases and ineffective financial management: Cash-only businesses must invest in pricey security measures, specialist bookkeeping procedures, and alternate payment processing methods, which raises operating costs and lowers profit margins.
Suggested Remedies and Countermeasures
Promoting federal legislation that makes the regulatory environment clearer and encourages banks to serve CRBs will increase access to standard banking services while also expanding cannabis banking services.
Supporting Safe Alternative Payment Options: By promoting the use of cutting-edge payment processing technology, such blockchain-based solutions, CRBs may be able to replace cash transactions with safe and legal options.
Encouraging State-Level Banking Initiatives: More feasible banking choices may be available if states were to encourage the establishment of specialist banking institutions or regulatory frameworks designed with CRBs in mind.
Practicing Financial Education and Compliance: By offering CRBs training in financial literacy and compliance advice, we can help them better comprehend financial regulations and function within the law.
Cannabis companies encounter financing difficulties that seriously impede their ability to expand and succeed.
A multimodal strategy comprising of creative financial solutions, extensive assistance for CRBs, and legal modifications is needed to tackle these issues.
Overcoming these obstacles will enable the cannabis sector to reach its full potential and support social progress and economic expansion.
Although there are banking solutions available for cannabis business owners, there is certainly a long way to go in dealing with various banking issues caused by federal regulations and laws.
Gavin is a worldly adventurer and cannabis connoisseur, embarking on journeys that take him to the far corners of the globe to explore and document the varied effects, flavors, and histories of both renowned and lesser-known strains. From the misty high-altitude farms of the Hindu Kush highlands to the vibrant cannabis cafes of Amsterdam, Gavin's quest for knowledge spans continents. A recognized authority in the cannabis industry, he frequently lends his expertise to leading publications such as Cannabis Training University, where his captivating blog articles chronicle his unique experiences with different cannabis strains.