However, in order for the SAFE Banking Act to be successful, banks need to start accepting cannabis as a legal commodity here to stay. Of course, this is easier said than done—notably due to the fact that marijuana remains a federally illicit Schedule I drug.
Erin O’Donnell, the cofounder of Infused Banking, tries to bridge the gap between banking and cannabis businesses. Through her line of work, she teaches those in the cannabis industry what banks are looking for when seeking out new clients. Vice versa, she also helps banks identify which businesses are legit in a largely unregulated industry.
“The bank has to reconcile your million dollars with your sales, or you are money laundering,” she said. “It has to say to a regulator: ‘I know what this customer sells. I know what this customer does. I know it employs.’ So, it’s really about transparency.”
Furthermore, since Mastercard and Visa refuse to work with the industry, Infused Banking is developing software that will make digital transactions safe and effective. Beyond helping cannabis dispensaries with documenting their sales, this will likely also lower the risk of robberies.
Unfortunately, much of this is easier said than done. As already mentioned, cannabis remains a federally illegal substance. With that, banks must take different protocols when working with new clients. Naturally, this provides complications that go beyond traditional banking.
According to Ryan Himmel, head of strategic partnerships at LeafLink, “We want to bring in the product, engineering, and partnership resources that have experienced large-scale institutions and progressive fintechs. They can take those learnings and apply it to an industry that’s underserved. You need to be very creative.”
LeafLink provides business-to-business (B2B) opportunities – notably, invoice financing. They’ve developed a system that pays suppliers upfront through ACH and then bills the invoice to the retailer. This system has made transactions of large sums of money much smoother within the cannabis industry.
Dutchie is another platform some dispensaries have incorporated, handling point of sale, eCommerce, payments, and insurance.
“For a cannabis retailer, your point of sale cannot be the same as a restaurant or a hotel,” said Jessika Wood, head of strategic payment partnerships at Dutchie. “You have state regulations, you’ve got tax reporting and ID verification for your consumer. So the POS software has to be able to accommodate all of those attributes.”
Beyond local dispensaries, we cannot forget that there are also multi-state operators. All of which have to adapt to different state regulations. For these types of clients, Valley Bank comes in as a means of helping businesses find the right bank for them.
“We’re kind of setting the tone in terms of what ‘compliant’ means,” said Jennifer Yager, senior vice president of anti-money-laundering compliance at Valley Bank. “As the market matures and things exist in the space and you’re not seeing the sky falling, more and more banks are getting involved.”
As you can see, there are many moving parts to cannabis banking that often go unnoticed. And it’s exactly these moving parts that have made it difficult for newcomers to enter into this industry.
The future of banking in cannabis remains uncertain at this point. Even with the SAFE Banking Act, not all problems are solved. As Yager notes, “SAFE doesn’t fix the card problem. It doesn’t fix 280 E. It doesn’t fix this marijuana-limited SAR [Suspicious Activity Report] filing framework, which creates a lot of compliance burden.”
Still, such problems will likely resolve themselves as time passes. Since banks now see the multi-billion opportunities of cannabis, many are trying to work out these issues to get involved.