Cannabis is still illegal on a federal level, and as of this writing, just 19 states have embraced full legalization, while 19 others have enacted medical marijuana programs

As a result, the vast majority of U.S. banks view cannabis as high risk and will only consider assuming the risk of working with cannabis-related businesses if the laws change, providing a regulatory green light. The notoriously conservative financial services sector does not want the potential legal nightmare or hit to their reputation from more traditional investors and account holders. As of the first quarter of 2021, of the roughly 12,000 U.S. banks and credit unions, only 553 banks and 202 credit unions were providing banking services to cannabis related businesses. 

So, cannabis businesses are struggling with how to fill their financial services and compliant cannabis payments needs.

The SAFE Banking Act

The Secure and Fair Enforcement (SAFE) Banking Act aims to solve this problem. The bill, most recently passed for the seventh time by the U.S. House in July 2022, would prevent banking regulators from penalizing financial institutions that do business with high risk cannabis companies. If the bill were to pass through the Senate and eventually become law, the SAFE Banking Act would also prevent regulators from going after cannabis industry service providers, ancillary businesses, or state and local governments.

However, the bill is still languishing in the Senate for a variety of reasons, one of which is because pro-cannabis lawmakers are hoping to pass through more sweeping, comprehensive cannabis legislation. They don’t want to potentially kill their chances of doing that by putting all their weight behind the SAFE Banking Act. 

With politics causing a logjam in enacting a nationwide cannabis banking network, where are businesses supposed to turn for banking and compliant cannabis payments? What do they do if they can’t partner with one of the few banking outliers?

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What NOT To Do To Access Compliant Cannabis Payments

What a cannabis business should not do is to try to get around the issue by attempting to rebrand the business as non-cannabis, with a nondescript name. 

Some businesses try to pull this off by positioning themselves as alternative medicine or consumer packaged goods. 

While these tactics seem like the perfect work around, it doesn’t always pan out that way. Even if your business is ancillary – one that never touches or goes near the plant – it’s still a risk. 

What is that risk? If a financial services provider finds out they were duped into working with a business that is related to the cannabis industry, the provider will close the account and blacklist the business. This problem is especially prevalent in payments processing, and an issue that you need to take seriously.

For example, even if your ancillary business is in marketing or consulting, and the provider finds out that the vertical you work in is cannabis, they’ll cut off your services, whether your business touches the plant or not.

Even more concerning, if it’s an especially egregious case, the business owners might face criminal charges for deceptive business practices.

What Is The MATCH List?

What does “cutting off your services” mean, exactly? It means potentially getting put on the MATCH list, which is a record of merchants whose accounts have been terminated because of an unacceptable level of risk. Businesses on this list usually have excessive chargebacks, but other businesses were added for excessive fraud, illegal activity, PCI non-compliance, or bankruptcy.

If your business gets flagged and placed on this list, it could take up to five years to fall off. It could be difficult if not impossible to find financial services partners to process future compliant cannabis payments. Even if you do find a partner, you’ll most likely pay considerably higher processing rates, and endure a much tougher application process. Also, be prepared to meet specific reserve requirements — used to protect the merchant bank from chargebacks — meaning you can’t use all of your funds.

This is a problem that can present a logistical and operational nightmare if it happens to you at the wrong time in your business cycle, causing headaches with both customers and suppliers.

Alternative Solutions Fill The Need For Compliant Cannabis Payments

Banking services companies have stepped into the void as an intermediary, specializing in compliant cannabis payments and other financial services.

By working with a banking and payment solution, cannabis-related businesses can take advantage of FDIC-insured bank accounts, lending, payments processing for cannabis, and merchant services. Banking services companies also handle the headache of compliance issues. 

These capabilities are enabled through a third-party proprietary platform and are ideal for a wide variety of businesses including MSOs, ancillaries, and hemp companies. 

Not only do these solutions allow cannabis businesses to operate as normally as any other non-regulated business; they also eliminate the stress and cost associated with operating solely in cash. 

Additionally, legal cannabis states have strict laws that cannabis businesses need to adhere to when it comes to doing business in cash and security compliance. And as you would expect, each state has its own patchwork of laws that are difficult to stay on top of. 

When a cannabis business lessens the cash-only and payments processing burdens, they get back time and money.

If you would like to learn more about how Abaca’s cannabis banking platform can benefit your business, get in touch with us here.

Want to learn more about deploying purpose-built cannabis financial solutions to automate and improve compliance? Contact Abaca today.

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