America's Cannabis Industry Evolution Is Being Shoved Underground by Lack of Banking Infrastructure

By Thomas E Gavin IV, CEO, CannaTrac

The cannabis industry has never stopped evolving as state-by-state adult-use legalization has taken place at a breakneck pace; however, common business tools such as banking solutions still remain elusive for many canna-businesses. In fact, the slow rate of mainstream banking adoption has threatened to slow the progress of legitimizing the cannabis industry, and has actually begun to shove the industry underground as desperate business leaders search for ways to decrease their risk, increase employee and consumer safety, and reduce opportunities for fraud. Unfortunately, a failure to act may have even caused an increase in illicit markets.

This issue is not new, but its importance is more crucial now than ever before. Legalized cannabis has existed for nearly nine years in states like Washington and Colorado. In 2021, the cannabis industry is beginning to burst at its seams and the rally cry grows louder for banking reform. As Bloomberg reported: “[the cannabis industry’s] evolution is being handicapped by a lack of basic banking infrastructure … While logistical issues facing dispensaries are well known, obstacles to setting up the most basic of commercial operations extend far afield, hobbling scores of vendors and service providers who could help the industry emerge from the shadows.” This was reported in 2016. Five years later, the situation is more desperate than before, and this issue remains top of mind.

Gaining Freedom From the Cash-Based Business Model

Recently, the U.S. House of Representatives voted to approve a large-scale defense bill that included a key amendment: banks could be protected from the risks of working with cannabis businesses with a license and full compliance in their state. As Rep. Ed Perlmutter (D-CO) explained: “This will strengthen the security of our financial system in our country by keeping bad actors like foreign cartels out of the cannabis industry. But most importantly, this amendment will reduce the risk of violent crime in our communities. By dealing in all cash, these businesses and their employees become targets for robberies, assaults, burglaries, and more.”

The fear of being punished by federal regulators is a very real aspect bankers are concerned about as cannabis remains a Schedule 1 drug. Despite the legal status of adult-use cannabis across U.S. states, regulations are often in flux, leading to either the lack of staffing to properly understand the rules, or an inability to keep up on changes as they happen. In short - the apparent risk of banking with cannabis companies remains too high for many banking institutions to accept. 

The Lack of Traditional Banking Services Hinders Cannabis Industry Growth

There are several major issues faced by cannabis businesses who are accruing profit from their customers in a cash-based environment. Not only is it difficult to find a bank that will offer its services, but when they do, banking often comes with high fees in order for the banks to mitigate any potential risks or damages and additional overhead costs.

With a system lacking universal compliance and regulations varying state-by-state, there are often bad actors or the beginnings of an environment ripe with fraud. Legal, state-certified cannabis companies are often seeking ways to increase transparency in their businesses, and while they are largely able to establish pillars of transparency like being an upstanding employer, donating to local social programs, and innovating with environmentally friendly business practices like eco-packaging or waste reduction, they are often left with few options to remain transparent in a very crucial aspect of their business: point of sale purchases and banking. While some do their best with limited tools and resources, some take the opportunity to exploit loopholes or grey areas, which can lead to full-blown fraud in the market. 

Even with business leaders who have the best of intentions, the lack of banking availability means state regulators are also missing a valuable opportunity to provide oversight and checks and balances to the system.

Solutions Are Needed Today - And They Already Exist

Until the United States government enacts true reform, several solutions exist for cannabis companies to remain compliant and access necessary banking resources. From solutions like gift cards to mobile wallets or loyalty programs that track purchases, there is no shortage of innovative individuals and companies trying to offer solutions to this problem. 

Anyone in the cannabis industry can tell you, we have proven ourselves to be made up of inventive, dedicated, and resilient individuals, and that has never been more apparent than when it comes to banking. We remain hopeful for country-wide reform and until then, we keep innovating daily to build up this industry and work even further toward mainstream legitimacy.