Contradicting Banking Regulations Challenge Cannabis Industry Growth

By Michael Cheng | July 13, 2017

Operating cannabis businesses is becoming easier, as more states recognize the legality of such establishments – but storing money at the end of the day is not. In fact, banking guidelines for the industry have become increasingly complicated for business owners.

This major obstacle is often overshadowed by the success of the nascent sector. For example, recreational cannabis proved to be a huge hit in Nevada, bringing in an estimated $3 million worth of sales in the first four days of public openings. Despite such accomplishments, legal cannabis transactions remain cash only in the state.


Banks, which are largely governed by federal law, are not optimistic about supporting cannabis retail shops with mainstream financial services typically offered to other types of businesses. This is because on a federal level, cannabis is still illegal. Since financial institutions rely on federal systems for insurance, wire transfers and payments, the last thing they want to do is rub authorities the wrong way.

One of the ways banks could overstep their relationship with federal regulators is by failing to report illegal activities, which is where cannabis business owners and financial institutions are currently at a standstill. Cannabis is considered to be legal in states that acknowledge it as a product – even though federal authorities persistently view the plant as a controlled substance.

“The FDIC could step in and shut down a bank, and it can do that with very little notice,”

said Julie Hill, a law professor at the University of Alabama and former finance industry attorney.

“Nobody’s ever gotten their bank brought back to life after it’s been closed by regulators.”

As a result, retail shop owners are taking two very different approaches to managing their finances.

Some groups are hoarding cash in personal vaults, with help from third-party security agencies, to prevent criminals from targeting their establishments. Technically speaking, this approach isn’t illegal – just very risky. As long as sales are properly accounted for, recorded and reported to the federal government, there’s nothing wrong with maintaining boatloads of banknotes in a secure safe.


Other cannabis business owners prefer to take their earnings directly to the Federal Reserve Bank, where it is placed into a credit union account for safekeeping. The most dangerous part of this method is bringing cash to the federal building. No one wants to carry large amounts of money around in broad daylight, even with a security escort.

“Right now, at the downtown office of finance, there’s a six-story parking structure 500 yards away,” explained Jerred Kiloh, owner of Higher Path Collective, a medical cannabis dispensary located in Sherman Oaks, California.

“I have to walk through what is essentially a homeless encampment with a duffel bag full of cash, walk across the street, go through security and then sometimes stand in line.”

There’s no doubt that partnering with a local bank is the key solution to reducing risks related to managing retail transactions. By allowing cannabis shops to leverage electronic financial services, owners would not have to choose between maintaining an in-store vault or delivering their earnings directly to federal institutions.

Michael Cheng

Michael is a legal editor with publications for Blackberry, and R Magazine. He specializes in tech startups, cannabis gadgets and fitness wearables. He enjoys spending time outdoors, being a productive father and partaking in a nightly toke after the end of a long day.

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