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 recreational and medical marijuana use, and the United States marijuana market is projected to reach over $70 billion by 2030. Additionally, more people are supporting marijuana legalization, as 88% of Americans say marijuana should be legal for recreational or medical reasons.

Unfortunately, many marijuana businesses across the country are struggling to secure bank accounts and business cards, forcing them to rely on cash-only policies. Even though over 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.

Do Marijuana Companies Deposit Their Income in Bank Accounts?

Today, marijuana-related businesses can bank with reputable institutions across the country. However, the process is a bit different than with other industries. While cannabis is legal for recreational and medical use in many states, it’s still classified as a Schedule I controlled substance federally. This is why the IRS and other government programs are pressuring banks to prevent opening marijuana business accounts.

For the most part, many financial institutions are discreet about whether they offer cannabis banking programs. In addition, many national banks still treat marijuana businesses like the gambling, firearm and adult entertainment industries, which are all considered high-risk industries. This is why you may have better luck banking with credit unions, regional banks and community banks.

How to Bank as a Cannabis Business

As a cannabis business owner, it’s important to know the steps you’ll need to take to handle your company finances. Whether you’re new to the industry or want to better understand how to manage the requirements and options for cannabis banking, here’s what you need to know about marijuana financing.

1. Hire or Outsource a Cannabis Accountant

All cannabis businesses will benefit from an accountant, specifically one in the cannabis field. Cannabis accounting professionals can help you maneuver the strict local, state and federal cannabis tax laws. This helps prevent tax audits and makes it much less stressful for you to plan and prepare for tax season.

An accountant can also help you with other financial tasks, including bookkeeping and payroll. Down the line, if you were to ever get audited by the IRS for an error or inconsistency on your business tax return, your cannabis accountant can provide tax debt resolution and audit representation services to resolve the issue.

It’s beneficial to rely on a professional tax attorney for your cannabis business, as they’ll work with your unique financial and business circumstances. Because marijuana businesses must follow strict guidelines and laws, it can be difficult to navigate such complicated requirements.

Your cannabis accountant can take the stress out of this process and help you secure a bank account or handle your cash if you’re not able to open a marijuana business account. Taking this first step when you open your marijuana business can give you peace of mind that your finances and company processes are being overseen by an experienced professional.

2. Try and Secure a Bank Account

While securing a cannabis company bank account isn’t easy in 2023, 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.

Fortunately, in September of 2019, the House of Representatives passed the Secure and Fair Enforcement Act, which forbids regulators from charging bankers with crimes for working with cannabis businesses. As of 2023, the bill has been passed seven times but continues to get dropped in the Senate. Many advocates are still working to push the bill through in the upcoming years.

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.

3. Prepare for the Costs

All marijuana businesses are different and come with different expenses, mostly due to the fact that every state has various tax laws, policies and restrictions surrounding the sale of marijuana. However, some expenses remain the same across the board. 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.

4. Prepare for the Risks

Let’s say you can’t secure a bank account immediately. If you don’t already have a cannabis accountant, 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.

Some cannabis businesses may not qualify for certain payment methods, such as direct deposit. Even if you are able to secure a bank account, some banks may refuse to work with you and you put your employees at risk when you deposit funds into their accounts. Depending on your state, it can be difficult to secure a marijuana business bank account and loan. Some cannabis businesses will have to look at alternative funding sources.

Your general sales can also be risky. Some states still have restrictions on interstate commerce for cannabis, so you may have to rely on local consumers. There are also factors that prevent users from purchasing marijuana, such as the risk of losing their job for taking medical cannabis that they’re prescribed.

Another major risk for cannabis businesses that can’t secure the protection of a financial institution is the risk of theft. In the marijuana industry, businesses can quickly become targets if they are forced to operate on a cash-only basis. This raises the risk that burglars may 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 or hire a cannabis accountant that can manage your cash for you.

5. Consider Options for 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. However, 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.

Let Polston Tax Guide Your Marijuana Banking

While the marijuana industry is growing, it’s always been difficult for marijuana businesses to secure a bank account and to access financing. With increased legalization across the nation and the SAFE Act, 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. At Polston Tax, our accountants can help file your taxes, prepare your financial documents and assist with other tasks such as bookkeeping.

Contact us today to learn about how our services can help your cannabis business.

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