The Strong Public Policy Reasons for Banking Cannabis Businesses

Quite apart from increasing your financial institution's revenue, providing banking services to cannabis businesses makes a lot of sense for a number of reasons. The public policy arguments in favor of cannabis banking are compelling and increasingly difficult to ignore.

Public Safety

Cannabis businesses that operate without access to banking services are forced to conduct their operations entirely in cash. This creates significant public safety risks. Cash-only businesses are attractive targets for robbery and violent crime. Employees, customers, and surrounding communities are all put at greater risk when large amounts of cash are stored on premises or transported without the security infrastructure that banking provides.

By banking cannabis businesses, financial institutions help reduce the volume of cash in circulation within the cannabis industry, directly contributing to safer communities.

Transparency and Accountability

When cannabis businesses operate outside the banking system, their financial activities are largely invisible to regulators and law enforcement. Cash transactions are inherently difficult to track, audit, and verify. This lack of transparency undermines the regulatory frameworks that states have built around their legal cannabis programs.

Banking cannabis businesses brings their financial activity into the regulated financial system, where transactions can be monitored, reported, and audited. This transparency supports the integrity of state cannabis programs and helps identify and prevent illicit activity.

Tax Compliance

Cash-only businesses face inherent challenges in tax compliance. Without banking records, it becomes more difficult for cannabis businesses to accurately track and report their income, and more difficult for tax authorities to verify compliance. This creates risks for both the businesses themselves and for state and local governments that depend on cannabis tax revenue.

Banking provides the financial infrastructure necessary for accurate tax reporting and compliance, benefiting both cannabis businesses and the public coffers.

Regulatory Compliance

State-legal cannabis programs impose extensive regulatory requirements on licensed operators. Banking relationships support compliance by providing documented financial records, enabling proper payroll and vendor payments, and facilitating the financial reporting that regulators require.

Economic Development

The cannabis industry represents a significant and growing segment of the economy. By providing banking services to cannabis businesses, financial institutions support job creation, small business growth, and economic development in their communities. Denying banking services to a legal industry constrains its ability to grow, hire, and contribute to the local economy.

Conclusion

The public policy case for banking cannabis businesses is strong and multifaceted. From public safety to tax compliance to economic development, providing banking services to legal cannabis businesses serves the public interest in numerous ways.

At Cogent Law, we help financial institutions develop compliant cannabis banking programs that serve both their business objectives and the public interest. For more on this topic, read our companion article on building productive FI and CRB partnerships. Explore how we can help.