"A brand new multi-billion-dollar industry has risen up in a few short years," writes Aaron Smith of TechCrunch, "and yet, most financial institutions in the U.S. remain reluctant to work with cannabis businesses due to fears of violating federal money laundering laws." That leaves marijuana startups without access to both funding sources and checking accounts, meaning most cannabis businesses operate on a cash-only basis, "creating massive security risks, logistical nightmares and regulatory headaches for all parties involved."
For those experienced in the cannabiz industry this may sound like old news, but for others just dipping their entrepreneurial toe into the legalized marijuana market, it may come as a sobering surprise. If you're getting into the weed business, don't expect a bank to help. But, as Smith reports, the legislative tide on weed banking could be changing.
Weed reform, from legalization to banking, is receiving unprecedented bipartisan support. And while legislation is moving its way through Congress that could provide safe harbor to banks working with state-legal cannabis businesses, the day when you can get a small business loan from an FDIC-insured bank for your pot startup is not here yet. So here are three things you need to know about banking and the marijuana biz:
Colorado was one of the first states to get moving on co-ops and credit unions as local alternatives to national banks. But as of late last year, the first state-chartered financial institution to exclusively serve the pot industry, Fourth Corner Credit Union, has yet to open its doors (and coffers) for business.
As Smith noted, there have been positive signs for pot banking reforms at the federal level. Federal Reserve Chairman Jerome Powell acknowledged last month that conflicting federal and state laws on marijuana legalization put bank supervisors in a "very difficult place." One would hope that clarification would be high on the Fed's to-do list.
But until that clarification happens --or new legislation gets enacted -- weed entrepreneurs will be denied some traditional sources of startup capital. Hopefully you have access to venture capital or private equity funds, angel investors, marijuana business consulting firms that manage private funds, or private providers of high-interest loans.
The laws regulating marijuana businesses vary from state to state, and are rapidly changing. Contact a finance attorney in your area to learn about the latest laws in your specific jurisdiction.