July 22, 2018

Cannabis vs. the Banking Industry

July 22, 2018
Banking problems businesses face in the cannabis industry.

By Heather Ritchie

Despite the recent medical studies and state legalizations, the fact that cannabis remains a schedule I drug means cannabis businesses have no legal banking systems. Federally charted banks caught handling cannabis money get charged with money laundering. To say this status is causing problems with day to day operations and security is an understatement.

Just in 2016, the cannabis industry brought in approximately $7 billion. Now in 2018, even though more states are legalizing, the federal status forces cash operations making tracking business transactions difficult. Not only is it a significant hassle, but it makes these businesses easy targets for theft and robbery. Its just one more hurdle in a long list of struggles and risks in an industry attempting to erase the stigma associated with it.

Cash Problems

Paying employees in cash and making customers pay for products with cash is inefficient in large-scale businesses. It takes extra employees just to complete ordinary business transactions and payroll. There simply aren’t enough banking options for industries that financial institutions deem risky to do business with.

Current theories to resolve the problem have concentrated on the business side of the equation, but really it must focus more on the banking side. One major issue with the banking system is the strict regulations against money laundering that the federal government imposes on banking institutions. Illogical banking regulation harms not just cannabis companies and the other companies that interact with them, but also local, state, and federal governments.

Photo by rawpixel on Unsplash

It is possible to be paid lawfully using digital payment methods and for banks to do business with cannabis companies. The Treasury Department announced clear guidelines in 2014 on what banks are required to do. Also, The Cole Memo was created in 2013 by The Department of Justice to present guidelines for financial institutions to provide compliant banking services to cannabis businesses in states where it is legal.

However, these regulations are complex and require that banks and other financial institutions file reports of suspicious activity that allow federal law enforcement officials to detect criminal organizations and activities. This is an example of an obviously unnecessary regulation for legal cannabis operations.

There are less than 30 financial institutions openly banking the cannabis industry. While no branded credit card networks will offer payment processing solutions until cannabis is legal federally, the few banks and credit unions working with the industry do have options.

Companies like Hypur offer a unique technology that meets the federal banking requirements. They also provide education to those currently providing financial services or for those that are looking to start offering them. Most states have at least one banking option to work with.


The industry’s financial woes also pertain to business taxes. Cannabusinesses in Oregon who had to declare sales tax in past years were required to take cash payments every month to a safely guarded site located in Salem, regardless of where in the state that their business was. While this is convenient for the state revenue department, it’s not safe or expedient to business owners, making it less likely that they would actually declare their sales.

Beyond the cash problem, the process of filing taxes for cannabis business is like navigating a hazardous maze and improperly filed paperwork could trigger an audit by the IRS. One major tax section specific for cannabis businesses is 280E.

280E is the section that doesn’t allow any businesses to deduct expenses related to the trafficking of controlled substances that are federally illegal like cannabis is. Even though 46 states have enacted laws that decriminalize cannabis within specific parameters, the federal drug laws still label it as drug trafficking. Other businesses can deduct everyday expenses like rent and employee wages, but not cannabusinesses.

Tax attorney Steve Moskowitz of Moskowitz LLP advises that cannabis businesses can exclude the cost of goods sold or the expenses that come directly from creating the cannabis products. He says for companies with any questions or doubt as to what they can deduct; it is best to contact a tax professional. There are things that cannabis companies can do to mitigate the damages of 280E like divide the company into sections as an S corporation.


Regardless, as more states legalize cannabis and more legislation is introduced, we will likely see an end to some of these archaic laws and regulations. More cannabis bills are presented in Congress on a regular basis, and some directly address banking problems. Others like the States Act don’t specifically mention the financial issues but bring clarity to the drug trafficking laws that are causing the most significant issues at this time.

Cannabis banking solutions are available and are currently being used successfully across the United States. The industry is growing rapidly, and the federal government is beginning to see that it can no longer ignore the cannabis problem.


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