Written by Derek Davis of California Cannabis CPA
But resources are available to help. We’ve put together a quick checklist for things to consider when trying to set up banking with your Marijuana business.
In 2014, the United States Department of the Treasury’s Financial Crimes Enforcement Network (FinCEN) issued guidance for financial institutions on this matter. Their goal was to clarify the expectations of the Bank Secrecy Act—which requires financial institutions to detect and prevent money laundering—in light of recent state initiatives to legalize marijuana.
By looking at FinCEN’s guidelines for financial institutions, marijuana-related business owners can get a good idea of what they need to do in order to give themselves the best chance of receiving financial support from these institutions.
Below are some things to keep in mind:
Have you submitted an application and supporting documents for a state license?
It is imperative that you obtain the proper state license to operate if you wish to receive any financial support. Financial institutions want to be sure that you are legally allowed to operate your business, otherwise they could face consequences for funding your business.
Are you duly licensed through the local authorities?
Occasionally, local jurisdictions require further licensing or have restrictions on marijuana-related businesses altogether. Be sure that in addition to your state license, you also are legally allowed to operate locally and licensed if needed.
Have you properly vetted other parties you do business with?
If you are doing business with other cannabis-related parties, you will want to vet them to make sure they are properly licensed and documented as well. Any affiliation with an unlicensed or improperly maintained third party could reflect poorly on you.
Have you properly vetted your employees?
In a similar vein to vetting any businesses you associate with, you also will want to ensure that your employees have no previous criminal records, especially those relating to money laundering or illegal drug trafficking.
Do you have a policy in place for the products you will sell and customers you will serve?
It is important to thoroughly document the type of business you do, as there are big differences depending on whether you sell or produce medical marijuana as opposed to recreational marijuana. Keep track of everything your business does in some way.
Do you have a good understanding of your business’ reputation?
Stay on top of current rulings and regulations so as not to fall out of compliance with authorities on a state or local level.
Do you fully understand the Cole Memorandum and your state’s laws?
Having an understanding of what is legally expected of you is imperative, because if you violate a state law or the Cole Memorandum in any way, financial institutions have every right to immediately pull their support and report your business.
Can you demonstrate a legitimate source of significant outside investments?
This is something that all businesses should do, regardless of whether they are marijuana-related or not. Financial institutions are more open to providing financial support if they can see that other institutions or investors have faith in your business.
Because of the Bank Secrecy Act, failing to follow any of these guidelines might result in worse than just losing financial support. Depending on the severity of the situations, it may be the financial institution’s responsibility to report you and your business, resulting in being shut down and, possibly, legal ramifications.
In the end, it is your responsibility to be diligent and transparent about your business’ operations if you wish to obtain or continue receiving financial support from an institution. If you have any questions with regards to this, please don’t hesitate to contact us.