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Will Banks Start Working With Legal Marijuana?

Some readers may be familiar with the saying ‘when America sneezes, Britain catches a cold’, an old piece of wisdom can be seen in action in everything from fiscal policy to celebrity culture. With the US incrementally adopting a more marijuana-friendly legal system it is reasonable to look at the issues they have to contend with and prepare for their probable reoccurrence in the UK.

Why do banks currently not work with legal marijuana companies?

One such issue that marijuana dispensaries have been contending with in the US is the difficulty their businesses face whilst working with banks. Still wary of the considerable stigma associated with cannabis despite its legality, certain industries are apprehensive about being associated with something still deemed to be peripherally illegal by many.


Banks are no exception to this, and a fear of incurring any criminal liability sees their connections to legitimate marijuana businesses severely limited. Essentially the banks have done their cost-reward analyses, and have largely concluded that the risks of doing business with legal marijuana dispensaries outweigh the potential benefits.

Much of this is connected with the fact that while marijuana may sometimes be legalised in a particular state, it still remains an illegal substance in the majority of the country. For the banks even getting involved in financial dealings with a legal marijuana business may be interpreted as money laundering and could lead to serious penalties. This means that unless workarounds are formulated marijuana will need to be legalised on a federal level before banks willingly involve themselves.This reluctance from the banks means that marijuana businesses must conduct all their dealings in cash despite being fully legal. These are not small-scale operations either, with even modest sized businesses having to deal with hundreds of thousands of dollars in transactions, all of which are conducted with unwieldy stacks of notes.

As any business can attest, being forced to conduct all affairs solely in cash is inconvenient, time consuming, difficult, and increases the probability of misfortune or human error damaging the company. Having to do everything with cash will also unfortunately give a veneer of illegitimacy to legal marijuana businesses in the eyes of some. This necessary inconvenience will likely be viewed by those who see a criminal aspect in the industry as justification for their assumptions, believing the lack of paper trail is being used by marijuana businesses to evade taxation.

Other considerations enterprising cannabis businesspeople must contend with are the lack of easy credit, an inability to write off business expenses when filing taxes, and the difficulty growers face in obtaining crop insurance. The latter is especially concerning to growers in warmer states such as California where a crop may foreseeably be set ablaze, posing a serious threat to such businesses.

What are the problems marijuana companies face without a bank?

banks-legal-marijuanaPracticality and reputation aside, one of the serious problems dispensary owners face is the very real risk of robbery. Legal marijuana businesses regularly amass stacks of bills within their premises that frequently exceed six figures. Criminals know this, and this makes such businesses tempting targets for ambitious thieves. Dispensaries and other marijuana related businesses face the constant threat of violent crime in the pursuit of cash that is kept on site, and even going for a monthly tax payment can turn into a hazardous but essential journey.

Changes evidently need to be made if the full potential of the legalised cannabis industry is to be realised. In the states that allow the cultivation and sale of cannabis there are vast sums of money that remain poorly accounted for by official measures due to this obstruction between the banks and such businesses. With the recent accession of California to the legal recreational smokers’ club it should be natural to assume that measures would be put in place to harness the potential $5bn that the economy could receive.  This, however, does not seem to be the case, with the impracticalities that financial institutions face keeping banks well away.

What’s being done to try to change this?

Attempts in various states have only found partial success so far. In late 2016 Colorado seemed to offer a ray of hope as a credit union called Partner Colorado agreed to provide checking accounts for certain legal marijuana businesses. This bold venture sought to proceed in spite of clearly being in violation of federal law, if not necessarily state law. In 2017 alone legal marijuana-linked clients deposited over $930m, with the credit union using a delicate system of deposits and withdrawals to keep within the law.


Whether this stands the test of time remains to be seen, with both federal crackdowns and the possibility of changing legislation altering the playing field. Other surreptitious attempts by banks to offer assistance to marijuana-business clients rarely last long, and individuals attempting to divert their bank’s attention from the source of their funds are always discovered sooner or later.

There may be little sign of substantial banking changes that work in the favour of marijuana businesses anytime soon, but there are at least some options for those looking for investment. The legalisation of recreational cannabis use in California led to numerous enterprising bodies offering investment and assistance in exchange for a small stake in the ownership of the company. While this is not a new business idea, its application to an infant cannabis industry could provide the growth and expertise it needs.

The question of when banks will willingly work with legitimate marijuana businesses is still unknown. As states expand the legal status of cannabis they must contend with a reactionary federal legal system that continuously sees marijuana as a threat on the level of far more dangerous substances. This may prove to substantially slow the progress of legalised cannabis and the newly formed industry, but it is likely only a matter of time before the sums involved can no longer be so poorly accounted for, opening the doors for all the services that legalised marijuana needs to thrive.

MSNL Team / 8th February 2018

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