The cannabis industry has grown exponentially in the last few years. This year alone, the projected valuation of the cannabis industry is expected to hit $32 billion. Despite all this growth, cannabis business license holders and operators still struggle to find reasonable banking and financial solutions that work for their businesses.

The lack of access to traditional financial services and capital for cannabis businesses has become one of the biggest roadblocks our industry faces. According to a new study from Whitney Economics, 70% of cannabis business owners sampled said that the “lack of access to banking or investment capital” was their top challenge. 

Here’s what you need to know about safe banking practices and IRS regulations: 

What is 280E and Why Do You Need to Know About It?

Section 280E is part of the federal tax code that effectively removes a marijuana-related business’s ability to claim tax breaks as routine commercial, medical, or agricultural businesses. 280E prohibits businesses from deducting business expenses, other than the cost of goods sold, from income if the taxpayer’s trade or business is associated with the trafficking of Schedule I or II substances, as defined by the Controlled Substances Act. Because the cost of goods sold is not a deduction but rather a decrease in gross receipts (revenue) to arrive at gross profit, it is permitted.

The reasoning behind this is that despite the momentum cannabis has gained in the U.S., it is still considered a “Schedule I substance” under the Controlled Substances Act. This means that, according to the federal government, it has a high potential for abuse, no currently accepted medical use in treatment in the United States, and a lack of accepted safety for use under medical supervision. 

What Does Safe Banking Look Like for Cannabis Businesses?

Despite the struggles cannabis business owners and operators face when trying to find banks that will do business with them, it’s important to remember that cannabis businesses CAN still pay bills electronically, hold bank accounts, and keep money in the bank – just like regular businesses once overcoming initial hurdles, like finding a cannabis-friendly bank. 

Currently, the Secure and Fair Enforcement Banking Act (SAFE Banking Act) and the Cannabis Administration and Opportunity Act are on the table as viable options to help alleviate the financial hurdles cannabis businesses face. However, despite having easily cleared the House of Representatives in 2020 and again in 2021, this measure has not yet reached the Senate floor for a vote.

The banking options available to your business will be largely contingent on where you live –  just like many other aspects of cannabis compliance. Once you’ve narrowed down regional options for banking, here are some best practices to ensure the process is as smooth as possible: 

  1. Be upfront and let the bank or credit union know you run a legal marijuana operation – do not attempt to lie or misinterpret the facts. You want a financial institution with experience in the cannabis industry. Don’t waste time with financial operators that don’t support the industry.   
  2. Analyze the bank or credit union based on how well they interact with customers. Reach out to local connections, if possible, to inquire about their experiences with them. Feel free to ask questions, and look into reviews other cannabis businesses have provided. 
  3. Beware of the fine print. Check to see if your account has any deposit or holding limitations or capacity restrictions. The last things you want are surprise fees or unexpected issues.
  4. Is the price right? Consider the extra charges for wires, payroll, checks, debit cards, online banking access, and other fees that could add to your cost of doing business.  Think about how you will set your future self up for success as your business grows. 

Finally, remember that the procedure of creating accounts is typically the same as what you’ve done for yourself or for other businesses once you’ve waded through the extra red tape; it will just take more time and paperwork.