U.S. cannabis companies are forecast to bring in as much as $10 billion in retail sales this year – money that will largely go untouched by the country’s leading financial institutions.
Banks that do service the industry must follow a complicated patchwork of federal guidance and costly compliance rules or risk losing their charter, notes Ken Berke, co-founder of PayQwick. The firm in Calabasas, California, offers a suite of electronic payment solutions for cannabis companies and works with banks servicing the industry to help keep them compliant.
Understanding the rules your banker must follow to take your company’s cash is the first step to landing and maintaining a solid banking relationship, Berke said.
“Put yourself in the shoes of your banker,” he said. “Know what’s important to them.”
What are the critical items businesses should consider as they seek out a banking relationship?
A cannabis business must establish credibility and trust with the bank. These tips are not listed in order of importance – all of them are important:
- Meet with your banker in person, multiple times if requested.
- Be open, honest and transparent with your banker. Do not conceal anything, even if you think it will cost you the account.
- Emphasize your commitment to compliance. Share your compliance policies and procedures with your banker. Most importantly, compliance comes from the top. Owners and upper management must stress compliance; if upper management does not value compliance, no one else will.
- Appoint a chief compliance officer reporting directly to the CEO and give that individual real authority to get things done and discipline employees.
- Know what’s important to your banker. Specifically, know and understand both the Cole Memo and the Feb. 14, 2014, guidance issued by FinCEN (the Financial Crimes Enforcement Unit of the Department of Treasury). Also, have a basic understanding of the bank’s Know Your Customer due-diligence obligations under the Bank Secrecy Act. If you don’t understand them or what’s important in them, get your attorney to explain them to you in detail. When submitting documents requested to open the account, be thorough and complete and submit them all at once. Do not submit incomplete.
What type of banking institutions appear most open to working with the industry?
State-chartered community banks and credit unions are presently most likely to be serving the cannabis industry. We have not seen the regional banks or national banks “openly” serving cannabis businesses. There also is a distinction between “plant-touching” cannabis businesses and ancillary businesses that provide goods or services to cannabis businesses. Some ancillary businesses have been successful getting accounts at major regional or national banks, but it depends greatly on the personal relationship between the owner of the ancillary business and the branch manager of the bank.
What types of banking fees should a firm expect to pay?
This is a supply-and-demand question and varies greatly between states. In some states, we’ve seen application fees of several thousand dollars, followed by monthly fees of several thousand dollars. In other states, we’ve seen application and monthly fees as low as several hundred dollars each.
What is the biggest mistake a company can make to jeopardize its banking relationship?
Always respond promptly to all requests made by your banker and never “surprise” your banker. Withholding negative information from your banker is a sure way to get your account closed. If there is an issue, like you’ve received a Notice of Violation from a state inspector, don’t hide it. Get out in front of it and have a plan in place to correct the violation.
Be able to demonstrate where every dollar received by the cannabis business has come from. This applies not only to money that you’ve deposited into your account but to cash that may be held on hand to pay for inventory. If you cannot prove, with documentary evidence, where every dollar has come from, it will surely make your banker nervous.
What steps should a firm take if its banking relationship is cut off?
A lot depends on why your account was closed. If it was closed because the bank simply decided to no longer provide services to cannabis businesses in general, then ask the bank for a letter to that effect so you can show it to your new prospective bank. If your account was closed because of something your business did or failed to do, then you are in a much more difficult situation. Be prepared to demonstrate that:
- You have fixed the issues that caused your account to be closed.
- You have put measures in place to ensure those same issues do not arise in the future.
Other than the added cost, there’s no risk to having accounts open at two financial institutions at the same time. That way, if one account gets closed, you have a backup.
– Lisa Bernard-Kuhn
This interview has been edited for length and clarity.