There’s a lot of talk about the lack of access to banking and payment processing in the legal cannabis industry. But what most don't realize, unless you're in the industry, is that businesses that support cannabis companies have the same problems. Banks won't provide ancillary cannabis payment processing to what they consider marijuana related businesses (MRBs).
What is a marijuana related business? We’re not talking about a business that grows, processes, or sells marijuana. We’re talking about lawyers and doctors and packaging companies. Normal businesses that provide services to the marijuana and cannabis industry. The industry commonly refers to these businesses as ancillary cannabis companies. These businesses do not work with the actual plant, but they get penalized for working with the cannabis industry, nonetheless. And it’s been going on for years now.
Banks shut down the accounts of MRBs and ancillary cannabis companies because of who their customer is.
It was the beginning of 2017. Trump had just become President, and AG Jeff Sessions voiced his stance against the legal marijuana industry. The federal government took a stance on legal cannabis and federally governed banks took notice. There was a mass purge of any potentially risky account holders. Businesses had their accounts closed by all major payment platforms and other mainstream banking platforms at once.
Every ancillary marijuana business in the country was left scrambling to find a bank account and merchant account to accept payments. This left cannabis related businesses with only one choice. The dreaded offshore high-risk payment processor. Ancillary cannabis companies were subject to difficult terms, funding holds, and expensive rates. And the offshore merchant accounts were not necessarily stable either. They can suspend your account just as quickly as anyone else.
What’s the problem? Why do banks shy away from serving the ancillary cannabis industry?
The ability to process credit card payments requires the involvement of several entities and communication lines, each Federal Government regulated.
For any payment transaction, you’ll have at least four players.
- The acquiring bank - the bank that issues the merchant account and settles and funds the transaction.
- The card brand -such as Visa, MasterCard, Amex, and Discover.
- The card issuing bank- Chase, Wells Fargo, Bank of America- FDIC insured banks.
- Interchange- the card brand created communication network over which transactions are routed.
Because these institutions are Federally backed and regulated, they must comply with Federal laws. Two of those federal laws are the Bank Secrecy Act and the Money Laundering Control Act.
The Bank Secrecy Act (BSA) requires banks and financial institutions to participate in the enforcement of anti-money laundering. It requires banks to establish anti-money laundering programs, policies and procedures, as well as controls.
The Money Laundering Control Act prohibits and criminalizes participating in any financial transactions involving proceeds from criminal activity. So, if a bank were to process a transaction where the proceeds are derived from an illegal activity, they could be prosecuted for a federal crime.
What does this have to do with ancillary cannabis companies and MRBs?
Unfortunately, the disparity between Federal and State laws leaves ancillary cannabis companies operating in the same gray area that plant touching businesses do.
As far as the federal government is concerned, marijuana related businesses support and aid an illegal activity. They provide services that support or promote an illicit industry. And they derive a majority of their income from an illicit industry. This is considered by the federal government as a financial crime, or money laundering.
Any time you can trace money back to an illegal activity, that money is then considered to be laundered. This puts banking institutions serving the ancillary cannabis industry in a tricky spot. If they were to be accused of money laundering and violating the BSA, the Federal Reserve could shut down their master account.
Why is it hard for financial institutions to serve MRBs?
To help ease the divide, the Financial Crimes Enforcement Network (FinCEN) issued guidance for banks serving the ancillary cannabis companies. However, it's only guidance, not protection.
The FinCEN guidance is meant to help clarify the expectations set by the Bank Secrecy Act (BSA). It’s a pathway for banks to continue to serve their customers while still abiding by BSA and Federal regulation.
The BSA requires banks to file enhanced reports anytime a transaction involves “suspicious activity that might signal criminal activity (e.g., money laundering, tax evasion)”. These enhanced reports are called Suspicious Activity Reports, or SARs.
In short, FinCEN regulations require banks to file a SAR for every transaction that “involves funds derived from illegal activity..” Now, we understand that any transaction that derives money from, supports or promotes an illegal activity could be money laundering.
Of course, when you sell cannabis, you're committing an illegal activity in the fed's eyes. But we rarely think of a packaging company as being involved in an illegal activity. But that’s exactly how the FinCEN sees it. The packaging company is selling to a cannabis company, therefore they're deriving funds from an illegal activity and supporting an illegal activity.
So, if a federally backed bank wants to serve a cannabis business, or a medical marijuana business in a legal state, they would be subject to enhanced SARs reporting. But no one talks about the fact that money deposited by MRBs also is subject to SARs reporting when it comes to deposit accounts.
In an effort to differentiate between a report regarding a marijuana related business and actual suspicious activity, FinCEN created the “Marijuana Limited SAR”. Since banks are required to file a SAR for every single transaction, this tells FinCEN there is no other suspicious activity other than being engaged in a MRB.
What does all this mean for banks who want to serve the ancillary cannabis companies?
In a nutshell, it means a lot of work, a lot of money, and a lot of liability. There's a substantial amount of customer due diligence to satisfy the requirements to serve a MRB. There's also a considerable amount of continuous account monitoring. And almost constant SARs reporting for every transaction for every customer. And with all that comes additional compliance costs as well as legal costs.
Following all the anti-money laundering regulations for serving ancillary cannabis companies is tedious work. With so much paperwork, there is always a risk that something could get missed.
This brings an additional level of risk since it opens the door to greater federal scrutiny. If something were missed or done improperly, it could result in having the Federal Reserve closing the bank’s master account. That would be devastating for the bank.
On top of that, banks must take into consideration public perception and reputation. Financial institutions don't want to do anything to upset investors. And they don't want to risk losing customers for serving an industry that may not be accepted by their customer base.
Financial institutions must consider each of these liabilities when deciding to work with the cannabis industry. And that includes servicing the businesses that support the industry.
Many will choose not to work with the industry. They may not be able to take on the expense required to comply with Federal SARs reporting.
Most major platforms like Square, Paypal, and most major processors such as Elevon and Fiserv will not process for MRBs. In fact, they place MRBs on their list of prohibited merchant types.
Despite all this, ancillary cannabis businesses can get a merchant account to accept credit card payments.
The good news is that the country is progressing towards fair access to banking for the industry. Even if it is slow.
This time last year, the House made history when it passed the SAFE Banking Act by a landslide. It was the first time a House floor vote passed a stand-alone marijuana bill. Of course, we’ll have to wait and see where that goes as it faces strong opposition in the Senate.
But that's not the only progress in the works. Congress is also expected to vote on the MORE Act following the November elections. The MORE Act aims to completely remove marijuana from the Controlled Substances Act. This move would decriminalize the substance on a federal level, easing many problems with access to banking. Among other things...
Fortunately, some acquiring banks and financial institutions are equipped to comply with the FinCEN guidelines. And they committed to providing merchant accounts for ancillary cannabis companies and other MRBs.
Why trust your ancillary merchant account to Bankcard International Group?
Ancillary businesses don't have the luxury of handing in a few bank statements with their merchant account application and boom! You're approved!
If you’re an ancillary cannabis company, your Merchant Service Provider must understand the challenges of the high-risk payment processing industry. But they must also know the regulatory challenges the cannabis industry faces. It's not enough to just be a high-risk merchant service provider.
There’s no mis-coding, or other sneaky ways to gain merchant account approval. The right provider has fostered banking relationships with the proper solutions to provide legitimate merchant services to ancillary businesses.
We have the relationships to provide you the most stable solutions for your ancillary cannabis payment processing.
The team at B.I.G. has worked with, and supported, the cannabis industry since 2006. We have years of experience creating solid relationships with banks and regulators equipped to serve our customer base.
We are experts in high-risk payment processing, and we understand the unique challenges facing businesses in the cannabis industry. High-risk accounts are more labor intensive than traditional merchant accounts. That's because the underwriting is much more intensive.
Banks that take on the liability of serving the ancillary cannabis industry are going to weigh each account carefully. Underwriters will go through the entire business model with a fine-tooth comb. No problem. Our in-house underwriters know how to put together a comprehensive package to help ensure quick approval.
We also provide stable alternative payment processing solutions such as eCheck processing and ACH processing. The Automated Clearing House is independent and therefore not regulated by the Federal Government. But they must abide by state laws, and all transactions must be transparent in nature. Both customer’s banks involved with the transfer must know that the transfer is a MRB transaction.
Both solutions are a great backup payment solution to support your credit card processing. If something was to happen with your merchant account, you will still be able to accept payments.
We have forged long-term business partnerships with our clients. We are here for you, working for your success and longevity. We firmly believe it's not how BIG your processor is, it’s how BIG you are with your processor.
Call us! Let us show you what it means to “Experience The B.I.G. Difference!”