The cannabis industry has seen tremendous growth over the past few years – and it’s all thanks to how more states are legalizing medical and recreational marijuana use. Cannabis businesses, however, continue to face significant banking challenges despite this growth.
Since cannabis is still illegal at the federal level, many banks are hesitant and don’t want to work with cannabis companies – leaving little to no banking options for cannabis businesses. Here are five strategies to help cannabis businesses overcome banking obstacles and access the financial services they need to grow and thrive.
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Look For Cannabis-Friendly Financial Institutions / Banks
One of the keys to overcoming banking obstacles in the cannabis industry is finding a cannabis-friendly financial institution. Due to the federal illegality of cannabis, many traditional financial institutions shy away from working with cannabis businesses, leaving them with limited banking options. This means that a thorough search is essential to find financial institutions that work with cannabis businesses.
But, while federal regulations make many banks avoid working with cannabis businesses, some are willing to work with cannabis businesses to provide essential financial services. Those institutions know cannabis businesses face unique obstacles and have customized services. It is important to conduct research and identify financial institutions that are willing to work with cannabis businesses.
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Develop a Strong Compliance Program
With marijuana still being federally illegal, the primary reason for banks’ reluctance to engage with cannabis businesses is the potential for violating federal law. To overcome this hurdle, cannabis companies must establish a strong compliance program that guarantees adherence to state regulations and guidelines – making it an essential strategy to your cannabis business’s success. A compliance program demonstrates two things.
It shows banks that the cannabis business is committed to following state regulations and guidelines. This helps to build confidence and trust between the business and the bank – ensures the cannabis business operates legally, minimizing the risk of regulatory action and potential penalties.
Establishing a compliance program can be powerful in persuading banks to partner with cannabis businesses. It shows that cannabis businesses can comply with regulations and provide reassurance to banks, leading to increased access to essential financial services and improved financial management.
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Maintain Detailed Financial Records
Maintaining detailed financial records is essential for overcoming banking obstacles in the cannabis industry. Due to cannabis being illegal at the federal level, banks sometimes hesitate to work with cannabis businesses. But cannabis businesses can show banks they’re financially stable and viable by maintaining accurate records.
Maintaining meticulous financial records shows that cannabis businesses are responsible for their finances and compliant, so they can get financial services and grow. In addition, by keeping accurate records, your bank is provided with transparency and confidence in the business’s financial health, increasing the likelihood of forming a partnership. Also, with detailed and accurate records, it becomes easier for cannabis businesses to keep track of their finances and expenses and identify areas where they can improve.
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Consider Alternative Banking Solutions
Banking obstacles in the cannabis industry can be overcome by considering alternative solutions, especially when traditional banks are hesitant. Due to federal regulations, traditional banks tend to shy away from working with cannabis businesses, so exploring alternative banking options can help cannabis businesses grow unhindered.
For example, one alternative banking option would be to inquire with different credit unions – which tend to have a more community-centric approach and may be more open to collaborating with cannabis businesses. Another alternative is to explore online banking solutions, specialized platforms designed to provide financial services to cannabis businesses. By seeking alternative banking solutions, cannabis businesses can increase their chances of accessing the financial services they require to grow and thrive.
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Be Transparent with Financial Institutions
Transparency is the key to overcoming banking obstacles in the cannabis industry. Because cannabis is still illegal at the federal level, financial institutions are worried about working with cannabis businesses. Therefore, cannabis businesses must be upfront and honest with financial institutions about their operations. Transparency and honesty about their business activities and finances can ease these concerns and build trust with financial institutions – which involves disclosing potential risks or compliance issues.
Not only does transparency help cannabis businesses build trust with financial institutions, but it also helps improve their chances of getting banking services. It also makes it easier for financial institutions to make informed decisions about banking services when they understand the business’s operations and risks.
The challenges faced by cannabis businesses in accessing banking services are significant, but not insurmountable. By implementing strategies such as building strong relationships with financial institutions, strong compliance, keeping detailed records, and exploring alternative financial services, cannabis businesses can overcome these obstacles and position themselves for growth and success.
Looking for expert financial guidance to navigate the complexities and challenges of the cannabis industry? Reefer CFO Solutions is your best choice! With a team experienced in the cannabis industry, Reefer CFO Solutions offers CFO services tailored specifically to the needs of your cannabis business. With our experience in cannabis banking, we’ll help you overcome obstacles and get the financial services you need.