Although securing a bank account as a cannabis business can be challenging, it’s not impossible. As more and more states legalize cannabis, you can expect an increase in financial options. Seeking the advice of experts in cannabis banking will help speed up the process and alleviate initial roadblocks. The partners at Northstar Financial Consulting Group, are here to offer helpful advice and critical insights.
Here’s some background on the history of cannabis banking, and why opening a bank account isn’t as easy as you would hope.
In 2013, James Cole, former Attorney General, created a memo that helped federal prosecutors interpret the Controlled Substances Act (ACT) in states where cannabis was legal. In effect, the memo protected legal cannabis states from the federal cannabis ban. This is one reason certain banks won’t touch cannabis money – because cannabis is still illegal at the federal level.
Choose Your Bank Wisely
Federal banking institutions won’t take on any cannabis clients. It’s too much of a risk to put their billions of dollars of assets on the line. Plus, the compliance burden is too large and they don’t want to risk having their FDIC insurance revoked.
Rather than wasting your time at a federal bank, meet with local community banks, regional banks, and credit unions to see how they can help. These banks have the resources to maintain the proper due diligence and compliance and have much to gain with cannabis clients.
Here are a few other strategies that can improve your chances of establishing a bank account for your business:
Use a Simple Business Name When Filing Your Articles of Incorporation
This document is what proves the existence of your company, from a legal standpoint. It’s also the document banks look over while they consider giving your business a bank account. Needless to say, a name like “420 Vape Shop” or “Dank Weed LLC’ is not the best of choices. This can raise red flags and cause unwanted attention. Instead, we suggest you select a more discreet business name. You can use a general name or your initials followed by Corporation, Limited, Group, Company, etc. Conservatism and professionalism go a long way in the eyes of bankers.
Create Two Distinct Bank Accounts
Once approved by your bank of choice, make sure to set up one account strictly for cash deposits and the second account for paying business expenses. This will help mitigate the chance of having a S.A.R (suspicious activity report) filed or getting your account frozen. This report or freeze can occur in the first account because of the large volume of cash activity. So, having a second account is a good business practice. It allows you to keep paying your bills and taxes on time while you work to manage affairs with your second account.
If a S.A.R. or freeze is issued, it’s advised to have all your financial documentation, city and state permits, licenses, expense reports and the like, in order. Having this documentation organized and accurate can help your business maintain its status as an account holder.
Another possible scenario after opening your business bank account is getting audited. This is another good reason to make sure your bookkeeping is solid, and your metrics and compliance are in place. This is no easy task, yet something that needs to remain impeccable. Having a team of specialized cannabis accountants and financial consultants on your side could be essential to the status of your bank accounts and the overall viability of your company.
Develop Good Rapport With Your Banker
Lastly, try to consider your banker a friend, or an ally, as opposed to a business transaction. This can pay back in dividends down the road and might even reduce the possibility of a S.A.R. getting filed on your accounts. Be as courteous, friendly, transparent and professional with your banker as possible. A little bit of effort goes a long way.
To learn more about cannabis banking from Northstar’s expert cannabis accountants and consultants, contact them at (424) 274-3188 or info@nstarfinance.com.
