This is a sponsored post by Peter Su of Green Check Verified.
The Merriam-Webster dictionary defines an urban legend as an often lurid story or anecdote that is based on hearsay and widely circulated as true. To say that a new and emerging industry like the cannabis industry would have a few myths is an understatement.
With that, let’s discuss The five myths of cannabis banking.
Myth 1: Cannabis companies can’t get a bank account
In a study by Whitney Economics, 72 percent of cannabis businesses polled responded that banking was their No. 1 concern—72 percent! That’s ranked ahead of taxes, by the way. Cannabis businesses ranked banking concerns ahead of taxes…
Now, this particular myth is based totally on truth—but from a certain point in time. In the early days of legalized cannabis, the industry was, in fact, “unbanked” and existed completely in cash. It wasn’t that long ago when cannabis companies used to have to pay their taxes in actual stacks of cash.
Today, FinCEN estimates that there are 755 financial institutions providing banking services to the industry. I believe most insiders would agree that the 755 number is way too high; we largely agree that the number is closer to 200, maybe 250ish. But, regardless of whether it’s 700ish or 200ish, the point is there are hundreds of financial institutions working with the cannabis industry today.
It’s worth noting that dividing that total across the country means that in any given state there are only a handful of banks or credit unions banking cannabis businesses.
Myth 2: Cannabis companies can only bank with credit unions
I am honestly not too sure how this particular myth took such heavy roots, but it’s not true. Not anymore anyway.
In the very early days, credit unions were the first to start accepting cannabis deposits, and the NCUA (National Credit Union Administration) has been much more vocally supportive of the cannabis industry. But that dynamic is changing—fast.
If you go by the FinCEN numbers, there are significantly more banks than credit unions in the cannabis space, and if you go by “insider” numbers, it’s more like 60/40 in favor of the number of banks.
The better question here might be: does it matter? In modern-day banking, there is not that much of a difference between a typical bank vs. a typical credit union. For your average business, the difference between the organizational structures of banks and credit unions isn’t nearly as important as what products and services they’re willing to offer.
Myth 3: Cannabis businesses transact in cash only
There are two sides to consider with this myth: B2B and B2C.
Let’s first tackle B2B (Business to Business). As discussed above, there are banking options now. Generally speaking, a cannabis business today that wants a bank account can get one. So, while there was a time when businesses actually had to pay everybody in cash, from vendors to suppliers, that is just not the case anymore. PayQwick powered by Green Check even has an option via our QwickPay functionality for instant settlement B2B.
Business to consumer (B2C), however, is a bit more nuanced. Presumably, you have heard by now that credit cards are NOT available in the space. This is the main driver for the large amounts of cash in the business. Consumers like credit cards, and at the moment that is not an option, hence the heavy cash usage at the retail level. However, there are many great cashless options available, contrary to popular belief. Aside from credit card based/linked transactions, just about every other form of B2C payment option is available. So, why the heavy cash usage if people can go cashless? Consumers like credit cards.
Myth 4: Cannabis businesses can’t get a loan from a traditional bank or credit union
Ok, I accept that this myth is fairly well-founded. Up until perhaps 2 or 3 years ago, there was virtually zero institutional debt available. Almost all the money in the space was private in some way: private equity, family offices, private lenders, etc.
Aside from an actual reticence to lend from banks and credit unions, there is another possible origin for this myth: start-ups. Here’s the thing: For most new license holders, or for that matter, aspiring license holders, what they actually need is start-up capital. Banks and credit unions are not traditionally sources of startup capital.
In select scenarios, there are programs that may be helpful, such as various SBA programs, for example. Unfortunately, those programs are not available in cannabis at the moment. With some hemp-based products, USDA and/or other government programs may be available, but not so much for THC products.
Again, it’s important to note that this particular blocker is not due to the business being a cannabis business but rather a fairly common issue that every startup has to contend with. Unfortunately, it is a harsh reality that if you don’t have enough startup capital for your business, there just simply won’t be a business. The point is, I believe those get lumped into the “can’t get a loan from a traditional bank or credit union” myth.
Today, many of Green Check’s great banks/credit unions are lending to plant-touching businesses and lending on plant-touching properties.
Myth 5: Banks are making bank off banking bud
Look, I’m not going to pretend that financial institutions are losing money on cannabis. Keep in mind, if they did, they probably just wouldn’t do it. But, it’s not nearly as profitable as the myth would suggest.
Consider this: prior to software, like Green Check, being available, banks and credit unions used to talk about this ratio: 5 to 8. That is, for every 5 to 8 cannabis businesses you banked, you had to add another employee to support them. That’s how much work is involved in banking cannabis. Mind you, we are talking about expensive and in-demand talent like BSA analysts/officers.
Today, Green Check has clients managing 50, 60 and upwards of 80 accounts per full-time employee (FTE – FTE hours is how compliance resources are measured). So for cannabis businesses, the early days of paying $10k+ a month just for a checking account are largely gone. Today, financial institutions that are not competitively priced are finding themselves either struggling to gain traction or bleeding accounts/assets to competitors.
We could probably go on and on, but these are the Top Five cannabis banking myths, in my mind. Of course, like a lot of myths and urban legends, they tend to be based on some truths.
Ironically, it is the ascendance of companies like Green Check that turned some of these points from truths into myths. With proven software and proven expertise now available, the adoption and acceptance of cannabis banking by traditional financial institutions has significantly accelerated in the last few years. With more financial institutions in the space wielding better, more efficient processes, that naturally drove down pricing while improving capabilities and capacity.
This is a sponsored post by Peter Su of Green Check Verified.
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About the author:
Peter Su is a Senior Vice President with Green Check Verified, the top cannabis banking compliance software/consultancy in the space. A long-time banker, Peter has spent 20+ years in finance. He has personally spearheaded two separate cannabis banking programs and in his current role at Green Check is responsible for the growth of over 120 cannabis banking programs all over the country. A frequent speaker and a sought-after thought leader, he has been featured in Bloomberg, Forbes, American Banker, Newsday, Rolling Stone and others.
An active member of the cannabis community, he is an advisor for Minority Cannabis Academy. And, he is on the board of the Asian Cannabis Roundtable, serving as treasurer. Additionally, he writes for Rolling Stone Cannabis Culture Council.
Peter has also previously served as an advisory panel board member for Pace University’s Lubin School of Business; on the banking and financial services committee of the National Cannabis Industry Association; Chaired the Banking and Financial Services Committee for the NYCCIA and is a US Army veteran.
Find Peter on LinkedIn at https://www.linkedin.com/in/petersu