“Highway Robbery by Police” - How the Lack of Banking Services Can Make Cannabis Companies a Target  

From break-ins to energy costs, to compliance regulations, running a cannabis business has no shortage of challenges. But one problem stands apart from the crowd for cannabis industry operators: difficulty accessing banking and other financial services. 

According to a survey published in late January by Whitney Economics, 72% of cannabis industry operators state that the industry's top issue is a lack of banking or financial services. 

The “U.S. Cannabis Business Conditions Survey Report '' polled nearly 400 respondents in 20 states. The survey’s respondents also named access to banking and other financial services the top regulatory issue facing the cannabis industry.

Notably, the survey also found that only 42.4% of cannabis businesses are profitable, and just over 20% break even. And in California, the country’s largest legal cannabis market, only 26.1% of respondents said that they turn a profit. 

"Highway robbery" carried out by police

A recent lawsuit in California illustrates why access to banking is so important for cannabis operators, especially as long as cannabis is illegal at the federal level.

In January, the Denver-based armored car and fintech company Empyreal Logistics filed a lawsuit against the federal government and several law enforcement agencies, alleging that it has been the victim of “highway robbery.”

The lawsuit states that Empyreal “is entitled to protection from highway robberies, regardless of whether they are conducted by criminals or by Federal Defendants and other law enforcement agencies acting under color of law.”

The lawsuit states that Empyreal’s vehicles have been stopped and searched five times, including three times over eight weeks in San Bernardino County, California. In November 2021, police seized a vehicle and $700,000 in cash in one stop in the county. In a traffic stop a month later, sheriff’s deputies took around $350,000. In both cases, the money was en route from licensed dispensaries operating lawfully in California. 

Those stops followed one in Dickinson County, Kansas, in May 2021, during which sheriff’s deputies seized $165,620. 

The lawsuit states that the seized funds were from licensed medical marijuana dispensaries operating under Missouri law in Kansas City, Missouri. The case says that before the seizure, Drug Enforcement Administration (DEA) agents conducted surveillance on the Empyreal vehicle as it made pickups at legal Kansas City dispensaries. A day earlier, a sheriff’s deputy had stopped an Empyreal van en route to Kansas City, during which the driver informed the police officer of the nature of the errand. 

In late January, a federal judge blocked the lawsuit’s motion to order a stop to the seizures. The judge said, “there is not enough evidence at this time to suggest that Empyreal’s constitutional rights were violated.” 

"Shocked isn't the half of it"

Describing her reaction to the Kansas seizure, Empyreal’s founder and CEO Dierdra O’Gorman said, “shocked isn’t the half of it.”

O’Gorman said she has spent 26 years in the banking industry and that while there are several hundred banks nationwide that will accept money from legal cannabis businesses, the reporting and record-keeping requirements the banks impose are quite extensive. 

“All of these things are scrutinized at a level that in my 26-year banking career I have never seen before,” O’Gorman said.

As of February 2021, 37 states have legalized medical cannabis, and 18 states have legalized recreational marijuana as well as medical. But without federal legalization, most banks avoid dealing with the cannabis industry, making it difficult for legal cannabis companies to access financial services like credit cards, checking accounts, and insurance. This is also why many legal cannabis retail businesses run solely on cash.

But recent moves in the US Congress have given many people reason for optimism.  

"A public safety risk"

In early February, the United States House of Representatives passed the America COMPETES Act, which includes the SAFE (Secure and Fair Enforcement) Banking Act as a provision amendment. 

The SAFE banking act “prohibits a federal banking regulator from penalizing a depository institution for providing banking services to a legitimate cannabis-related business.”

The bill also rules that proceeds from legal cannabis products and services “are not considered proceeds from unlawful activity.”

This would protect legal cannabis proceeds from anti-money laundering laws and mean that banking institutions would not be liable or subject to asset forfeiture for providing loans or other financial services to a legal cannabis business. 

It is still being determined if the SAFE Banking Act provision will still be in the COMPETES Act when it reaches the U.S. Senate. The House of Representatives already passed the SAFE Banking Act by a 321-101 vote in April 2021, but the Senate rejected it later in the year. 

In January, Pennsylvania state senators John DiSanto (R) and Sharif Street (D) said they would file a bill to protect banks and insurance companies that service state-legal cannabis businesses. 

In a memo announcing the plan, DiSanto and Street said that most financial institutions wouldn’t work with marijuana companies unless cannabis reform measures are passed. 

“As a result, many cannabis-related businesses are locked out of the banking system without access to financial tools and are forced to operate exclusively in cash.  This is a public safety risk as dispensaries are targets for robberies that put patients, employees, and communities at risk,” the lawmakers wrote. 

But it is a misconception that no banks will deal with legal cannabis companies. According to the Financial Crimes Enforcement Network (FinCEN) of the U.S., 510 banks and 174 credit unions provided banking services to marijuana-related businesses. 

But even when they find them, cannabis banking services come at a price. 

A May 2021 Reuters report found that banking services are expensive for cannabis companies because “federal illegality increases the amount of paperwork needed by banks.”

In the report, Chris Driessen, CEO of the cannabis company SLANG Worldwide Inc, said it cost his company $40,000 to open their bank account instead of $100 for a typical business account.   

“Standard banking for companies is often 95% cheaper than the cost to bank cannabis companies,” Driessen said.

As long as banking services remain expensive and without federal cannabis legalization, marijuana professionals and their customers will continue to face unnecessary risks.