Can Marijuana Dispensaries Use Traditional Banks?

Cannabis-related businesses (CRBs) in the U.S. face many obstacles accessing traditional banking services. Marijuana dispensaries are no different. Even with the legalization of recreational and medical marijuana in many states like Colorado, it’s still illegal at the federal level. This often makes traditional banks hesitant to offer services to cannabis companies.

For growers and retailers, this creates massive challenges. However, lawmakers are actively trying to address the problem.

If you’re a small business owner trying to navigate a legal issue in the marijuana industry, this dynamic landscape can be complex and confusing. Consider speaking with a cannabis law attorney for advice. They can help you understand the current state of laws that apply to your specific situation so you can determine the best way to proceed.

In this article, we’ll review some information you’ll want to keep in mind. Let’s start with the federal laws that make banks nervous to work with dispensaries.

Federal Laws That Limit Banking Services for Cannabis Businesses

Dispensaries generally don’t have access to traditional banking services at larger banks and financial institutions. Some might be able to find a smaller bank or credit union to provide them with business banking services. But this is usually at a high cost.

Larger banks and financial institutions generally stay away. This is largely due to concerns about potential violations of federal law and the higher burden of compliance. We explore some of these laws and compliance obligations below:

The Controlled Substances Act

The Controlled Substances Act (CSA) classifies marijuana as an illegal Schedule I drug. This discourages banks from providing services to marijuana businesses because they’re worried about facilitating illegal activities.

Anti-Money Laundering Laws

Banks must follow strict Anti-Money Laundering (AML) laws and regulations to prevent financial crimes. For example, the Bank Secrecy Act (BSA) mandates that banks report suspicious activity and detect/prevent money laundering.

Because the CSA illegalizes marijuana, banks fear potential money laundering charges for handling proceeds from marijuana sales. Also, compliance with AML laws for banks servicing dispensaries has been notoriously tricky.

Federal banking regulators oversee and enforce AML laws. The U.S. Treasury’s Financial Crimes Enforcement Network (FinCEN) is one such regulator.

FinCEN has issued guidance to clarify due diligence obligations for banks servicing cannabis businesses. This guidance places a significant compliance burden on service providers, which contributes to their reluctance to work with cannabis dispensaries.

For example, FinCEN’s guidance requires banks to file Suspicious Activity Reports (SARs). These include:

• Marijuana Limited SARs: For servicing a marijuana-related business that appears to be operating legally under state law
• Marijuana Priority SARs: If a bank believes a cannabis-related business is violating state law or poses a significant risk
• Marijuana Termination SARs: When a bank terminates its relationship with a marijuana-related business due to concerns about compliance or illegal activities

Clearly, banks servicing dispensaries would have to invest significant resources in compliance. The associated cost and risk, along with the fear of federal penalties, makes many banks reluctant to engage in cannabis banking.

FDIC Protection

The Federal Deposit Insurance Corporation (FDIC) is a federal government agency. It was created to foster trust and stability in the banking system. Essentially, it insures depositors’ funds in case a bank fails.

However, transactions involving cannabis sales are not FDIC-insured. Without this insurance, banks face higher risks, which contributes to their reluctance to handle these transactions.

Why Can’t Dispensaries Use Credit Cards?

Major credit card companies, like Visa and Mastercard, also tend to follow federal regulations. They generally won’t provide payment processing services for transactions related to federally banned substances like marijuana.

This reluctance often extends to debit cards as well. But dispensaries can sometimes process certain debit transactions without the involvement of these companies.

Impact on Dispensaries

As such, dispensaries suffer from a lack of access to traditional banking services. These can include:

• Bank accounts
• Automated clearing house (ACH) transactions
• Loans/mortgages
• Credit cards
• Online banking
• Wire transfers
• Electronic funds transfers (EFTs)

This creates significant operational challenges. Without bank accounts or credit cards, dispensaries often have to operate entirely in cash. Handling large amounts of cash can be both risky and inconvenient.

Limited Payment Options

Dispensaries’ reliance on cash limits customer payment options, which can reduce sales. This also often means dispensaries have to provide ATMs on-site to facilitate cash transactions.

Employee Payments

Compensating employees in cash is cumbersome and poses security risks for everyone involved. It complicates payroll management and can also lead to issues with tax compliance.

Tax Payments

Despite cannabis being illegal under federal law, dispensaries must pay federal tax on their income. Under many circumstances, cash payments for federal and state taxes require special/additional reporting. This can be complex.

Without bank accounts, online tax payments aren’t usually an option. This can mean large cash deliveries to government tax offices. Dispensaries often have to use armored vehicles and armed guards for these. This can be burdensome and dangerous.

When Will Banks Be Allowed to Work With the Cannabis Industry?

At this point, it’s hard to say. While dispensaries still struggle to access the services they need, we have seen some legislative progress in recent years.

SAFE Banking Act

The House of Representatives first passed the Secure and Fair Enforcement (SAFE) Banking Act in 2019. This legislation provides safe harbor protections to depository institutions. This means banks and credit unions wouldn’t be penalized for servicing state-legal cannabis businesses.

However, the bill has faced opposition in the Senate. The SAFE Banking Act is still being considered. But the focus has shifted towards the Secure and Fair Enforcement Regulation Banking Act (SAFER) Banking Act.

SAFER Banking Act

The Senate Banking Committee passed the SAFER Act in 2023 with bipartisan support. It’s essentially an enhanced version of the SAFE Act. The SAFER Act aims to address SAFE Act shortcomings and expand upon its protections. Specifically, the SAFER Act:

• Extends safe harbor protections to more financial institutions like insurers, lenders, federal agencies, and payment processing entities
• Requires updated guidance on SARs related to legal marijuana businesses
• Allows safe harbor for a wider range of financial services provided to cannabis businesses

The full Senate and House of Representatives have yet to pass the SAFER Act.

CLAIM Act

The Clarifying Law Around Insurance of Marijuana (CLAIM) Act is still in the early stages of the legislative process. It aims to provide protections for insurers offering services to cannabis businesses.

STATES Act

The Strengthening the Tenth Amendment Through Entrusting States (STATES) Act is currently under consideration in the House. Its most recent version (STATES Act 2.0) aims to declassify cannabis as a CSA Schedule I drug.

MORE Act

The Marijuana Opportunity Reinvestment and Expungement (MORE) Act passed in the House in 2022. But it’s awaiting further action in the Senate. If passed, it would decriminalize cannabis at the federal level and expunge past convictions.

These legislative efforts are part of a broader movement to integrate cannabis businesses into the traditional financial system. Doing so would:

• Reduce dispensaries’ reliance on cash transactions
• Improve public safety
• Enhance tax compliance

Despite these ongoing efforts, figuring out what’s best for your dispensary may feel overwhelming.

Getting Legal Advice

If you’re having trouble figuring out your next step, you’re not alone. The legal twists and turns related to the cannabis industry are indeed complicated. And the banking issues don’t help. Still, your options may be broader than you think.

If you’d like some guidance about staying within the lines while trying to efficiently run your business, you’ll likely want to consult an attorney. They should be well-versed in federal law as well as the cannabis laws of your state. Fortunately, FindLaw has a specific directory dedicated to cannabis law attorneys. Just click on your state to find qualified legal professionals nearby. You can even narrow your search results by city. You’ll see ratings and contact information for experts in your area.

Give yourself some peace of mind by reaching out to an attorney who understands the nuances of your industry.