Cannabis Banking is One of the Biggest Challenges Across the Industry – but Why?

Just this week, President Biden pardoned marijuana possession charges across the U.S., effectively changing the lives of thousands of people. Yet, the cannabis industry is still miles away from a federally legalized market – placing banks and cannabis businesses alike in a state of limbo. Despite 18 states now operating as fully legal markets, the hurdle of federal legalization places banks in an uncomfortable position because of inconsistent legal guidelines.

The federal government enforces very strict guidelines concerning how banks report and document transactions, and even a slight hiccup can trigger months of investigation and hefty fines. When it comes to working with cannabis industry pros, the risks outweigh the benefits for banks in a federally illegal world. 

The result is a status quo where very few banks are willing to service businesses in the cannabis industry – in fact, only 518 of the nearly 5,000 commercial banks in the United States reported having served the cannabis industry in 2021. This leaves many cannabis operators wondering where to turn when it comes to managing their business’s finances. Luckily, there are still numerous viable options for canna-prenurs looking to finance their business.

Solutions to Consider When Forming a Financing Strategy for Your Cannabis Business

Just because banking as a cannabis organization can be challenging doesn’t mean you should settle for working with just any bank or settling for subpar banking solutions. While there are banking options out there for cannabis businesses, you’ll need to know about the challenges you’ll be up against ahead of time to stay ahead and consider what solutions could be a good fit for your organization. 

While there may not be a permanent fix for the cannabis industry’s banking woes until federal legalization comes around, these tips can help address two of the biggest problems cannabis retailers face: dealing with a cash-heavy operation and struggles with bank vendors. 

Creating Solutions for Cash-Heavy Cannabis Retailers

For cannabis businesses, it’s not uncommon to have a large number of cash transactions, especially in medical-only states where few dispensaries can accept virtual payment. But, having a cash-heavy business can complicate your banking and security process. Cannabis retailers face cash-related challenges such as vendor tensions, cash divergence, major accounting headaches, payroll issues, security concerns, and more. Simply put, handling an all-cash business can be a headache and a liability from all sides – especially considering that many banks also charge transaction fees for large deposits. 

Efficient Options for Cash-Heavy Cannabis Retailers

Traditionally, many cannabis businesses rely on cash-in-transit services to handle their high volume of cash. While these services offer a convenient and secure way to handle cash, they can be costly for high-traffic dispensaries that require daily pickups. This leaves dispensaries between a rock and a hard place: forced to choose between forking out extra for daily pickups or facing the liability associated with storing extra cash.

This is where alternative options, like smart safes and cash recyclers, can be a huge advantage for business owners. Smart safes allow your bank to monitor the volume of cash you have in-house at any given time. Then, you can use that currency in real-time based on the volume you have, with no loss in cash availability. Cash recyclers work similarly, by allowing you to keep a certain amount of cash in-store for change or etc. While there is an upfront cost associated with these resources, they can help your business manage your cash flow more easily and securely. 

Explore Non-Cash POS Options

While cash-only operations aren’t uncommon in cannabis, it’s not the only option out there. Non-cash POS options mainly fall into two categories; pre-loaded “card” systems or ACH vending. Pre-loaded “card” systems don’t always include a physical card, but rather work similarly to debit cards, allowing customers to load funds ahead of time to purchase products in-store. ACH purchases work similarly to cutting a check, by pulling cash directly from a bank account. This method is a viable cash replacement for businesses, as it allows customers to pay using a third-party service like I Heart Jane or others. While customer adoption rates for ACH-based payments are low, incentivizing customers to utilize those services with loyalty perks and rewards can be helpful. 

Paving the Way for Better Relationships Between Banks and Your Cannabis Business

Avoiding Charges & Fees

If you’re finding that your bank often charges you high treasury fees or your merchant processing service is charging you hefty transaction fees, it might be time to make the switch. While banking options for cannabis businesses are limited, it doesn’t mean you should settle. Consider working with banks that have experience with cannabis brands, and look into merchant processing services that offer cash-back rewards for each card and credit purchase made. How can you vet a potential new bank partner for your cannabis business? Be sure to inquire what their experience with cannabis businesses, if any, has been like and utilize resources, like PBC’s cannabis banking database to find reliable bank partners with industry experience. 

Consider Streamlining with POS Data Tracking Systems

Many cannabis vendors struggle to manage their sales data and finances, as products like merchandise, CBD, and more are not mandated by the state to be reported. This can cause issues from the banking side, as it can leave sales from those types of products unreported on your data. Cannabis businesses can benefit from the power of POS data tracking systems that can capture the entirety of your business’s sales and financial data and relay that info to your bank easily and avoid financial discrepancies. 

 While cannabis banking can be a challenge, there are plentiful resources available for business owners to streamline their financial systems and overcome banking barriers. 

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