The traditional banking industry is largely closed to cannabis operators, but there are still ways you can get a bank account.
- Keep your business name professional to avoid raising any red flags when you apply for a bank account.
- Maintain two accounts, one for cash payments and the other for credit card payments.
- Develop personal relationships with bankers to reassure them that your business is entirely aboveboard.
Speak to one of our experts to learn more about banking in the cannabis industry.
If you’re interested in starting and operating a cannabis business, chances are you’ve run into some difficulty opening a company bank account. There are a variety of reasons why banks won’t take your cannabis money. This is both frustrating and dangerous for you as a cannabis business owner, as dealing with lots of cash opens the door to fraud, bookkeeping mistakes, and potential security issues.
We sat down with Green Growth CPAs’ CEO, Derek Davis to learn a few tips on how to successfully navigate cannabis business banking. Davis has worked with dozens of companies in California to help them understand this nascent industry’s complex regulations. Here are some of the recommendations he has to help you navigate cannabis business banking.
Have a Discreet Articles of Incorporation Name
We’ve seen many clients who have incorporated their business under names such as “The Dank Cannabuds”, “Dank Greens”, or “Delicious Cannabis.” While these names may sound cool, they’re not great from a banking perspective. Be sure to be mindful on the naming convention of your company and how it might be interpreted by the banks and regulatory agencies.
Opening a bank account for your cannabis business isn’t strictly legal, but it does fall into a grey area that banks may overlook if you open a general business account under a discreet name. Over the last year, more and more banks have been open to working with cannabis businesses. Make it as easy as possible for a bank to abide by federal banking regulations by using a name that doesn’t raise any red flags.
Have Two Different Bank Accounts
Open two different bank accounts to keep your cash flow under control. The first account can be dedicated to cash deposits while the second account can be dedicated to paying your credit card bills and other expenses. This account usually works without a problem. It looks like normal money in, money out towards paying bills as normal operating transactions.
However, it’s important to recognize that it’s not unlikely that your cash deposit account may be flagged by a bank because of the high rate of deposit and the high cash amounts. If this happens, it’s possible that your bank will file a SAR (suspicious activity report) and you should be prepared to show all documentation of your permits, licenses, and expense reports if asked. The most important part of maintaining two separate accounts is to not mix business and personal expenses. Your receipts must be kept in perfect order!
Build Personal Relationships with Bankers
Personal relationships go a long way in banking – especially when it comes to the people who write SARs. These reports are submitted to the Financial Crimes Network (FinCen), which can then increase banking costs for banks who serve cannabis business accounts. Usually, when costs go up, a bank may simply pass those costs on to their cannabis clients. That means you may have to pay a premium to have a bank account.
Sometimes this whole process can be avoided by establishing personal relationships with the tellers and bank managers of the bank. Provide them with enough confidence in you by being as transparent as possible about your financial stability, permits and licenses, and overall legitimacy as a business owner. Remember, cannabis regulations on banks were initially set up to stop money laundering and major drug cartels, not legal small businesses. By proving you’re a contributing member of the community and keeping your financials aboveboard with your bank, you may be able to avoid some of the filing and reporting that can drain your bank account.
Update the Name on Your Credit Card Statement
A business in California may register under a “fictitious” business name when applying for a commercial cannabis license. Make that business name something innocuous to help avoid added scrutiny on your credit card statements. When customers and clients purchase something from your cannabis business or engage your cannabis business’ services, be sure that the name and contact information that show up for your company on their statements do not mention anything to do with cannabis. If there are disputes, the customer or client are more likely to reach out to you directly instead of the bank, who may terminate and close your account.
Successfully navigating cannabis banking means being smart and resourceful with how you bank. Spend the time and effort to legitimize your cannabis business, keep it compliant with local and state laws, pay all your taxes, keep your accounts straight, and get to know your bankers to grow your chances of navigating cannabis banking successfully.
Looking for more tips from our experts? Get in touch for a personalized consulting session for your cannabis business.