In preparation for the newly legalized cannabis markets that were overwhelming voted in during the November elections, banks across the country are scrambling to quickly put together some type of plan for the cannabis businesses that will now require legitimate banking resources.
Protecting a cannabis business’ funds is just one of the many hurdles facing banks in states with legal cannabis markets.
Banking can be a confusing task for any new business to take on. Between choosing the proper accounts, filing paperwork, calculating interest and updating information weekly, it’s no wonder many cannabis businesses previously chose to forego the traditional way of banking entirely.
Until recently, many businesses operated outside of banks, controlling their own funds and unable to formally present tax documents that might otherwise raise questions about their company. Many of those who did choose to use banking facilities did so under false names with inaccurate business descriptions.
Now, with so many states legalizing cannabis, legitimate dispensaries, cultivators, vendors and a whole host of other businesses operating in the cannabis space are able to secure their finances truthfully, in a proper institution.
Dustin Eide, CEO of the debit payment company CanPay, say 2017 will lead to big changes for many cannabis businesses. Those that operated within the banking world under false names or businesses descriptions are likely to face scrutiny from the major financial institutions and financial services.
These audits will be used for the sole purpose of discovering and closing unapproved cannabis business accounts,
States with highly regulated cannabis markets require transparency from their license-holders making the due diligence on these businesses by the banks and credit unions that much easier to conduct.
If a business in a regulated cannabis market is hiding their cannabis-related activity from their bank, it is only a matter of time before they are discovered and lose their account; a severe interruption to their business. This includes payment related services like credit card processing. – Dustin Eide
While there are a number of startup companies trying to become a PayPal-like service for cannabis companies, none have successfully cornered the market. CanPay, the first legitimate
CanPay, the first legitimate debt solution for the regulated cannabis industry that delivers transparent payments from customers to businesses, while ensuring businesses stay within their state’s legal guidelines.
When using this service, businesses are not able to cloak their cannabis involvement or hide where the profits came from. CanPay is a great resource for the cannabis industry, but businesses must realize the importance of using services like this to prove legitimacy before they face serious consequences.
Banks have specific plans
Many banks and credit unions have already begun organizing whole departments dedicated to the cannabis industry. Financial specialists are trained to handle the complex workings that accompany cannabis businesses and are able to ensure their clients are operating under legitimate banking terms.
Eide says the specialized departments are going to help eliminate any cannabis business that tries to undermine the legal market.
These institutions have built dedicated departments that focus on their cannabis banking clients and will swiftly eliminate any business from their program that does not operate within the laws or transparently under their own business name.
Registering a business under a false name at a banking institution can lead to serious repercussions and not just from the bank itself. According to Eide, falsifying documents can cause funds to be frozen or even seized by the federal government while they conduct a thorough, and time-consuming, investigation.
It is a common practice for cannabis businesses to mask the nature of their business to gain access to traditional credit and debit card payment services, even though the major card brands specifically prohibit cannabis transactions.
Typically this is accomplished by either using another business to obtain the account, using an obscure legal entity name, or using an intermediary that will receive the funds for the transaction and then transfer them to the cannabis retailer.
Each method is an attempt to mask that the transactions are for cannabis purchases and will eventually be discovered, resulting in a shutdown of that service and a massive disruption to retail sales.
Cannabis businesses who lose their account also face the prospect of their funds being held in non-accessible “reserves” for 6-18 months and being added to the Visa and MasterCard MATCH list, a blacklist for businesses who violate card brand rules.
It’s imperative that cannabis businesses begin using transparency when banking and utilize services like CanPay to help them do so. Otherwise, these illegitimate companies but the entire market at risk.