These are high times for the American cannabis industry. Recreational marijuana is now legalized in 10 states and the District of Columbia, and myriad products containing non-psychoactive cannabidiol (CBD)—think CBD-infused skin creams, protein bars and kombucha—have found their way to storefronts across the nation.
But when it comes to receiving the kind of banking services that most businesses take for granted, pot-related business continue to find themselves cast adrift from the mainstream. The fact that marijuana remains a Schedule I drug under U.S. law means that most banks continue to be wary of financing the cannabis industry, lest they fall afoul of federal regulations. Case in point: the announcement that Canada’s Canopy Growth had reached a deal to buy U.S. cannabis company Acerage Holdings for $3.4 billion. The catch? The deal will only go through if and when the U.S. legalizes marijuana.
Indeed unlike most fledgling, growing industries, the pot business remains handcuffed when it comes to accessing everything from business loans to payroll services to electronic payment methods (including credit cards, which aren’t accepted at most dispensaries). Not only does this apply to companies who directly “touch the plant” but also ancillary businesses indirectly associated with the industry, who risk being cut off by their banks for receiving cannabis-related revenue.
“There’s a real aversion by the financial services industry in taking any risk at all in this space—whether it’s traditional bank accounts, merchant services, even insurance” says Brian Baum, CEO of CBD product company Cannovia. He recalls the Colorado-based company’s difficult process in finding a directors and officers (D&O) liability insurance carrier; of the 23 different insurers Cannovia applied to, “21 declined to even bid on the policy.”
In lieu of major national banks and financial institutions, some cannabis businesses have resorted to state-chartered credit unions willing to serve them in states where various uses of marijuana are now legal. Otherwise, many companies find themselves having to operate as cash businesses sitting on large quantities of paper money—a situation that obviously comes with its share of safety risks and inconveniences.
Published: April 19, 2019