Advanced Tax Planning

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Polston Tax Resolution & Accounting
Advanced Tax Planning

100+ Years of Combined Tax Resolution Experience.

Marijuana Banking 101: How to Manage Your Money in the Cannabis Business

If you strive to own a marijuana business, now is the time to do it. More states are legalizing both medical and recreational marijuana, and as marijuana sales continue to increase, more people are supporting marijuana legalization.

Unfortunately, marijuana businesses still endure one hurdle: it’s difficult to secure a bank account and a business credit card, forcing cannabis businesses to rely on cash.

Even though 90% of the global cannabis industry is located in the U.S., modern cannabis businesses have to work around the financial obstacles.

Fortunately, you do have marijuana banking options. Here’s how cannabis businesses can handle their finances.

Hire or Outsource a Cannabis Accountant

All cannabis businesses will benefit from an accountant, specifically one in the cannabis field. They can help you maneuver the strict local, state, and federal cannabis tax laws. This helps prevent tax audits and makes tax time much easier.

An accountant can also help you with other financial tasks. These include bookkeeping and payroll. Your cannabis accountant can also help you secure a bank account or handle your cash (if you’re not able to get a bank account).

Try and Secure a Bank Account

Even in 2019, many major banks are still skeptical to do business with cannabis companies.

While securing a bank account isn’t easy, it’s definitely doable. Before resorting to using cash, research banks and credit unions in your area and find one that does business with marijuana companies.

Where do you start looking? Don’t bother with federal or big-box banks. There are many reasons why.

First, the U.S. still sees marijuana as a federal drug. This is why the IRS and other government programs are pressuring banks to prevent opening marijuana business accounts.

Keep in mind, all of this is expected to change.

In September of 2019, the SAFE bill was passed by the House of Representatives. The Secure and Fair Enforcement (SAFE) Act forbids regulators from charging bankers with crimes for working with cannabis businesses.

This bill may open up the doors to more banks accepting marijuana companies as clients, helping them secure bank accounts, credit cards, and loans.

However, you should still focus on regional banks and credit unions.

Keep in mind that bank accounts vary from state. For example, you’ll have a better time finding a bank account in Colorado, a major state that has had legal marijuana for years, than in Illinois, which only recently legalized marijuana.

How do you go about getting a cannabis bank account? During the consultation, be honest.

Inform the bank you operate a cannabis business. From here, develop a relationship with the bank. Have your financial records with you, including profit and loss statements and other integral financial documents.

If you’re a new cannabis business, you may not be able to get a bank account immediately. Focus on achieving financial health and handle your cash well to qualify for a bank account down the road.

Prepare for the Costs

All marijuana businesses are different and come with different expenses.

Marijuana businesses will also have similar expenses to other businesses. For example, you should budget for a storefront or office space and the necessary equipment required to run your business.

But marijuana businesses have other costs as well, such as licenses and permits. These can get expensive, so budget accordingly.

Prepare for the Risks

Let’s say you can’t secure a bank account immediately. You’ll have to prepare for the risks that come with holding onto your cash.

The first issue you’ll run into is paying your employees. Without a digital and/or automated system, you’ll have to keep close tabs on your employees, their wages, the hours they work, and the taxes you’re required to pay.

Cannabis businesses may not qualify for certain payment methods, such as direct deposit.

Even if you are able to secure a bank account, other banks may refuse to work with you and you put your employees at risk when you deposit funds into their accounts.

It’s difficult to secure a bank account and it’s also difficult to secure a business loan. Cannabis businesses will have to look at alternative funding sources.

Your general sales are also risky. It’s forbidden to sell cannabis products out-of-state, so you have to rely on local consumers.

There are also factors that prevent users from consuming marijuana. For example, someone can lose their job for taking medical cannabis that they’re prescribed.

Another major risk cannabis businesses face is the risk of getting robbed. Burglars will come in, steal your inventory, and snag whatever cash you have on hand. It’s always best to keep extra cash and inventory locked away.

Financing Your Cannabis Business

This was briefly mentioned, but it’s important to emphasize this point.

Cannabis businesses aren’t able to access the financing options that other businesses can. Even the Small Business Association (SBA) doesn’t give out loans to cannabis businesses.

There are still financing options available, even though cannabis dispensaries need to avoid banks and the SBA.

Marijuana businesses can qualify for equipment financing, short-term loans, merchant cash advances, and equity financing, amongst other options.

Loans aren’t your only financing option. Crowdfunding is becoming more popular.

Ask for donations from your customers and the local community. You may not receive as much as you would with a loan, but crowdfunding provides another option aside from using personal funds.

Marijuana Banking Is Changing and Improving

While the marijuana industry is growing, marijuana banking was never an easy task.

It was difficult for marijuana businesses to secure a bank account and to access financing. But because the SAFE Act was recently passed, there’s more hope for cannabis businesses.

However, it’s still recommended that marijuana companies seek guidance from an accountant with expertise in cannabis law and financing.

An accountant can help file your taxes, prepare your financial documents, and assist with other tasks such as bookkeeping.

Are you ready to receive help from a cannabis accountant? Contact us today.

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