Cannabis Banking Readiness Means Having Verified Compliance
The banking industry is slowly creeping into the cannabis sector. Is your business ready for this necessary and all-important step? Will you be able to take advantage of all of the necessary banking products that will be made available to the cannabis industry? Products that streamline your operation and positively affect your bottom line?
Let’s take a look at a few key issues and gain an understanding that transcends your needs.
In your defense, you need banking. In fact, you must have banking and all of its many benefits that come in the form of financial products. Banking removes a huge safety concern because you have somewhere to park your cash.
Banking has benefits that relieve the many hours you spend running your business with cash and, free up personnel. You save money and time. No one can argue with the benefits and necessity of this much-needed opportunity.
Banks and other financial institutions are gearing up for potential massive involvement with the marijuana industry after last month’s passage of the SAFE Banking Act by the U.S. House of Representatives. https://t.co/UO5sg48mdp
— Marijuana Business Daily (@MJBizDaily) October 14, 2019
In the eyes of the bank, cannabis businesses are and will be a high-risk client. That’s because there is a significant percentage of non-compliant, black market, and trade-based money laundering activity in this sector.
It does you no good to argue against this statement. Rather, you need to accept the reality of it and prepare your business for this necessary transition. And here is another tough reality: The bank you are trying to get into sees you as a potential customer.
It is solely up to the bank as to whether they accept you as a customer. That’s right, “accept you”. Banking is not a right, it is a necessity. And that bank you have your eye on is not obligated to assist you. Remember, you are a high-risk potential client in the eyes of the bank.
The bank is obligated and actually required by law to monitor its clients, report suspicious activity, and minimize its risk. So then, what can you do to prepare your business for banking? Should you do anything other than scream for access?
Those Most Prepared Will Succeed
Cannabis executives that have their act together are forward-looking. They are preparing for eventualities. They are readying their organization for opportunity. They are streamlining their operations and improving their bottom line. In other words, they are readying themselves for banking and looking at every avenue to accomplish that.
Cannabis executives understand how the bank views their industry and look for ways to cooperate with the process and most importantly, gain access. They know that arguing against reality or perception does not gain access or speed the process. Martyrs make important statements, but they do not win the moment.
The time to prepare for banking is now. You have voiced your concern. You have made your needs clear. National government is moving your way. Banks are eyeing the opportunity and examining their path forward. No one denies the necessity and eventuality of the banking of cannabis.
More than a few banks are being very quiet about their cannabis customers at this point. They are also limiting their risk by only accepting a certain number of cannabis clients. Remember my earlier point, the bank decides to accept you. It is their choice.
The high cost of regulatory compliance has forced other financial institutions out of banking cannabis. Tulsa-based Encentus Federal Credit Union announced on Sept. 30 that it would close its nine marijuana-business accounts by Oct. 31.https://t.co/TrNox8FEFz
— Dustin P. Walsh (@dustinpwalsh) October 14, 2019
Get Your Financial House in Order!
Records of all types of transactions must be clear and organized. Or put a better way, you must be able to defend your financials in the face of scrutiny.
Don’t bring a shoebox of receipts and orders into your bank meeting. Use generally accepted accounting software and make sure your numbers add up. If you cook the books or have a second set of books, you are in trouble in a hurry. If you didn’t bother to keep clean records because you were really busy or frustrated at the lack of banking, you are in big trouble.
An auditor is going to go through your books with a keen eye. If the numbers don’t add up, you don’t get in. My suggestion, hire an independent 3rd party firm to reconcile your financials. Get started clearing up your books now so you are ready. Waiting until you have a bank targeted as a potential source is too late or at the very least, not wise. Be proactive, not reactive. Be smart.
The bank goes through a process called “KYC”, “know your customer.” In other words, the bank is going to dig into your business and find out about your organization. The bank wants to know all about you. Remember, they view you as a high-risk potential client. Some banks go so far as to KYCC, “know your customers-customers.”
The bank knows that diversion and trade-based money launderers hide their activity. Because the bank’s job is to minimize its risk, they want to know who the partners are, who owns what, where does the money go/flow, how transparent and compliant are you, and the list goes on.
Transparency is critical. In fact, if you only remember one thing from this article, remember to be transparent. Transparency means you have nothing to hide and you don’t really care who looks at what because you know “they” will not find non-compliant activity. You pay your taxes, you have workers compensation insurance, you don’t do ANY off-book activity, and the list goes on.
Independent 3rd Party Compliance
Let me leave you with a great idea. What I believe is both critical and a place where the industry is headed. That place is “independent 3rd party compliance verification.” It will not be the cannabis industry that demands it (unfortunately). It will be government, banking, and the insurance industry that require it.
Minimizing risk, monitoring risk, and ensuring compliant activity is critical, and it is coming. Coming because of the high rate of black-market activity. Coming because realized tax revenue is way under estimated.
Coming for consumer safety. Coming for many reasons.
Be smart. Be proactive. Be prepared.