I’ve previously written about the issues faced by brands when selling CBD on PayPal, as well as finding payment gateway solutions, but another area that causes a lot of frustration is banking in the cannabis industry.
I therefore wanted to dive a little into this subject, talk about the changes we’re seeing in the industry globally and what we can expect.
How Has The Farm Bill Changed The Landscape In The USA?
While we’re still lagging behind in the UK, the USA took huge steps forward for the cannabis industry with the 2018 farm bill, allowing industrial hemp to be grown legally.
Hemp was removed from the controlled substances act, which it shouldn’t have been on considering hemp is the low THC form of cannabis.
Of course, the hemp brands had to meet FDA requirements and standards in order to qualify.
Why Is It Difficult To Do Banking As A Cannabis Brand?
Banks have to be very careful which brands they work with. If they’re seen as working with an illegal brand that has broken certain rules, the fines they could face are extremely large.
Take a recent (unrelated) case, Natwest were fined last month £265 million for failing to prevent money laundering, by accepting bags of cash from a jewellers which was actually believed to be working in the drug industry.
The issue is that banks are being slow to react to the calming laws around hemp and many are still reluctant to work with CBD brands.
What Is The SAFE Banking Act?
Passed in April 2021 (then passed a fifth time in September 2021), the SAFE banking act bill prohibits federal regulators from applying a penalt to banks and financial institutions who work with cannabis related businesses.
This is a big step towards the legal reform of the unfairly notorious cannabis industry. It means cannabis brands in the USA could access financial services they were previously blocked from, which in turn will help their business to grow.
Before this, cannabis was largely considered the greatest underbanked industry in America.
Where Do The Issues Lie?
Considering this all looks straight forward, it can be hard to initially realise where the stumbling blocks are, preventing this industry from growing to the height it should be.
There are a few factors which are impacting how quickly banks are willing to change their policies, highlighted below:
- The legal status isn’t equal everywhere. While in the UK, a policy is set for the entire of the UK, in the USA, laws can be set on a state-by-state basis. Hemp might have been made federally legal, but you still can’t sell it in certain states.
- When it comes to both payment gateway solutions and banking, they must consider the risk levels of your business before allowing you to work with them and to handle financial services. CBD is largely placed in the ‘high risk’ sector, making it still very difficult to agree terms without paying out huge costs.
- The amount of CBD brands being launched is ridiculous. I’m contacted by approximately 3 new brands per day. That’s just brands emailing me, let alone the ones that are launched that have no idea who I am. It is hard for banks to work out which cannabis brands are reputable and which are after a quick buck.
CBD Banking Options
I hope to broaden out this section and update it over time, as more banks become open to CBD brands banking with them.
At the moment, there are a few options, including Starling bank in the UK, or Chase Bank in the USA.
At the end of the day, there might be risks for banks, but the revenue they will be getting is quite substantial, while allowing them to gain new business partners and become a dominant force in a growing industry worth billions of pounds. The reward comes to the risk taker!
Cannabis Companies Expanding Abroad
Many CBD brands are selling in multiple countries, facing the issues of tackling different country legislations.
For any cannabis brand looking to start selling in a new country, they should get a risk management strategy setup, so they can work out where some potential costs and barriers will be and how they will tackle these, to ensure it doesn’t damage their financial situation.
Often the recommendation is to have a financial specialist from that country in place, to help guide you through all the necessary loopholes in order to successfully sell in that country.
Predictions For The Year To Come
I can see more states in the USA relaxing their rules on cannabis, which in turn will lead to more brands being launched, banks easing their restrictive regulations and more financial services available for those brands.
At the same time, there is no guarantee the SAFE banking act will actually be passed in 2022, with so many loopholes to go through, with more focus on the CAO act.