Many entering the medical marijuana or CBD business in Florida have realized one of the hardest parts of the job is finding a bank. Banks are something we as consumers take for granted, but many businesses, such as strip clubs, laundromats, and medical marijuana have been labelled “high risk” by banks, and many banks opt not to open an account for these businesses. As a business owner, having a bank account is a necessity – it’s too dangerous to store all of your cash in one place, and suppliers and customers aren’t likely to want to make all cash transactions. Yet many entrepreneurs are finding that banks aren’t willing to hold their recently legalized business’ capital.
Why can’t the bank just hold money and not ask so many questions? What business do they have knowing where money came from?
Well, as per the Bank Secrecy Act, which was implemented following the Patriot Act and increasingly enforced during Bush and Obama administrations, the bank must take reasonable precaution that they are not assisting in the laundering of money. And the thoroughness of “reasonable precaution” has increased dramatically in recent years. Banks can be fined millions of dollars by the federal government if they don’t take steps to ensure the cash coming into their accounts wasn’t earned through illegal activity (Citi Bank – $70 Million in 2018 for 2012 activity).
Entire floors of the large glass bank buildings seen downtown are dedicated to combing through check and wire activity, making sure inflows and outflows of money are going to appropriate customers of each bank account holder, and digging into the backgrounds of account signers. If an analyst finds that some bank activity doesn’t make sense, or smells fishy, they escalate it to a manager, and then escalate it again if it’s really bad, and at some point upper management knows about it, and they may even decide to kick that customer out of the bank.
On one hand this sounds like an invasion of privacy for the customer. On the other, a bank has a unique opportunity to analyze an account’s activity, and (in our federal government’s perspective) a societal obligation to prevent assisting in a crime. If a violent drug cartel banked under a shell business, the bank can raise a red flag when account activity doesn’t seem right, not be complicit in the cartel’s crimes, and deter illegal activity.Unfortunately, medical marijuana smells fishy for bank execs. They group it in with cash intensive businesses like bars, fraud intensive businesses like elderly care, and crime riddled businesses like waste management. And maybe medical marijuana is a high priority for you, but for bank execs, it’s just another risk.
Unfortunately, medical marijuana smells fishy for bank execs. They group it in with cash intensive businesses like bars, fraud intensive businesses like elderly care, and crime riddled businesses like waste management. And maybe medical marijuana is a high priority for you, but for bank execs, it’s just another risk.
So how can you get a bank account for your medical marijuana business?
Fortunately, banks love untapped markets and love mitigating risk. If a bank sees a niche market such as MMJ, they will oftentimes hire an analyst that specializes in mitigating risk within the industry, and have that analyst work with your business to open accounts. This employee discussed with upper management his techniques for mitigating risk, and make them comfortable with adopting the industry.
Mitigating risk in an industry oftentimes involves visiting the site where business is conducted, auditing their account transactions regularly, and being familiar with the ownership of the business and their backgrounds. It also takes a bank analyst with familiarity of the industry. BB&T is know for taking on strip clubs, and as MMJ develops some banks will take the risk of making a name for themselves.
What are the next steps?
Go to a nearby bank’s website and call their commercial department – ask them if they could bank a legal business in the medical marijuana industry. If no, the conversation shouldn’t last more than a minute. Move on to the next one. If yes, they will get you in touch with a commercial banker that can walk you through everything he needs to get your account open. This will assuredly be more due diligence compared to opening a personal account, so don’t be surprised when the banker wants to dog into your financials just to open a checking account. Know that smaller banks and credit unions will be more desperate for your deposits, and may be able to reallocate resources to help you if your banking relationship helps them.
Of course, you can skip the phone calls, and just find a way to get a hold of me. I’d be happy to assist.