The cannabis industry has enjoyed seriously swift growth in recent years. The global legal market size is estimated to reach $16.7 Billion in 2022. And there is no sign that it is slowing down anytime soon. Recent research expects the global market to grow at a CAG rate of 25.5% from now till 2030. That will put the global market size at $102.2 billion in only 8 years.
This growth has a positive effect on many other businesses and industries that are not in the cannabis business, but are needed to support it. These companies are commonly referred to as ‘ancillary’ businesses, or cannabis-related businesses (CRBs). And the industry can't survive without them. But these cannabis-related businesses can’t survive without payment processing to accept payments for their services. Unfortunately, that's often what is being asked of them.
These supporting businesses include everything from farming supplies to testing labs, from packaging suppliers to textiles, and everything in between. All of these companies have had to step up their game and produce the goods needed by the industry.
If there is one thing that is slowing the industry down, it’s the lack of banking and payment processing services. By now we are all pretty aware of how difficult it is for cannabis companies. Their lack of access to banking, being unable to accept credit card payments, and being forced to operate in all cash are common news these days.
Financial Institutions are leery of providing cannabis-related businesses with payment processing.
Unfortunately, seemingly normal businesses are being judged for doing business with or supporting the cannabis industry. It’s understandable, under Federal law, why banks might be concerned about working with someone dealing with an “illegal” substance. But they are persecuting businesses who are not even touching the plant.
The cannabis industry, just like any other industry, needs access to various supporting trades to conduct business. Businesses such as lawyers, consultants, trade show organizers, T-shirt makers, label and packaging suppliers supply goods and services to other companies. These are normal, everyday companies and business owners who offer their services to all kinds of business types and models. But they often have to think twice when offering these same services to a cannabis business.
The cannabis industry on the whole operates in a very challenging legal environment. They must have the help of an attorney to make sure they are ready for long term regulatory compliance. Every state has its own unique set of state, county, or municipal regulations that a cannabis company must abide by.
It's often necessary for business operators to hire a consultant to help navigate all their compliance regulations. And to make sure they remain compliant as time goes on. There are companies that specialize in packaging, people who organize trade shows for various different trades, and ad companies that help businesses with marketing. The list goes on and on.
These businesses, like any other service, are just trying to lend their services to their customers. But because financial institutions view their customer as an illegal entity, they are guilty by association. It can be very difficult for cannabis-related businesses to secure payment processing to accept credit card payments.
Why do payment processors label CRBs as high-risk?
Banking regulations apply to ancillary cannabis companies in the same way they apply to plant touching cannabis companies. To understand why serving these businesses is risky, let's review a quick lesson on money laundering. If you're interested, we have a more in-depth explanation in the article Ancillary Cannabis Payment Processing.
Under federal law, it is illegal to derive profits from illegal activity. It is also illegal to support or promote illegal activity. The federal government regulates banks and financial institutions. Anti-Money Laundering Laws and the Bank Secrecy Act govern all business conducted by banks and financial institutions.
The Bank Secrecy Act (BSA) guidelines were created to combat money laundering. The BSA mandates that all financial institutions must help to fight money laundering. They are required to adhere to AML laws as well as establish AML policies, procedures, and controls.
Anti Money Laundering laws "prohibit and criminalize" involvement in financial transactions where proceeds are derived from illegal activity. Anytime deposits can be traced back to illicit activity, that is technically money laundering. So, when banks open deposit accounts for cannabis related businesses, and accept and process transactions, they could be involved in money laundering.
Under the BSA, anytime a transaction involves “suspicious activity that might signal criminal activity (e.g., money laundering, tax evasion)” banks must file enhanced reports called Suspicious Activity Reports, or SARs.
Any time a CRB moves money within the bank, it is technically transacting money from a business that derives its income from an illegal/illicit source. This means banks must continually file Suspicious Activity Reports for every single transaction being conducted.
Obviously, these businesses must have access to financial resources and the federal government understands this. Banks must be able to serve these industries without the risk of the Federal Reserve closing their Master Account and criminal prosecution.
The Financial Crimes Enforcement Network (FinCEN) oversees and enforces the rules within the BSA and Anti Money Laundering Laws (AML). In an effort to help banks navigate this problem while still acting within the BSA and AML laws, FinCEN issued guidance for banks to follow. This guidance is just that, though. It is not protection from prosecution.
When banks serve these ancillary companies, they take on a great amount of legal liability. Not to mention increased policies, staffing, rigorous SARs reporting and compliance. And with all that, a significant increase in costs.
The SAFE Act won't necessarily make it easier
Unfortunately, the Safe Banking Act won't necessarily make it easier for financial institutions and processors to provide payment processing to cannabis-related businesses.
If Congress passes the SAFE Banking Act, it may help. The Secure and Fair Enforcement Banking Act intends to address issues companies face when securing financial services. The goal per the Congress website is “To create protections for depository institutions that provide financial services to cannabis-related legitimate businesses and service providers for such businesses, and for other purposes.” It does not change the laws. The Act aims to prohibit federal regulators for punishing institutions for serving cannabis and cannabis-related businesses.
This is meant to ease the pressure for banks regarding criminal prosecution. Financial institutions are still participating in illegal activity, they're just not going to be punished for it. However, it does not ease the requirements for anti-money laundering programs and procedures, or enhanced SARs reporting requirements.
The SAFE Banking Act has passed the House six times, most recently in February 2022. As of the date of this writing, it has yet to pass the Senate.
Access to payment processing for ancillary businesses has actually gotten harder.
Following Federal and State regulations, where cannabis business is concerned, is like walking a tightrope. Banks won't risk upsetting investors or worse, aiding an illegal and illicit drug trade (in the Feds eyes). Many banks feel they can't abide by the Federal and Card Brand laws and still provide these industries service. Or, they just won’t incur the expense required to comply with Federal SARS reporting in order to service ancillary businesses.
CRBs must have an MSP who specializes in cannabis industry payments.
Many companies claim they do a high risk merchant account, but it doesn't mean they understand the unique troubles of the cannabis industry. To get an ancillary cannabis business merchant account, you need an MSP with broad experience with high-risk merchant accounts.
At Bankcard International Group, we understand the cannabis industry itself, and the unique problems it provides. We've gone through great effort to forge the proper banking partnerships to service your business legitimately. We are a highly-experienced Merchant Services Provider (MSP) that specializes in high risk merchant accounts.
For cannabis-related businesses, it's about more than just bank statements and creditworthiness to secure payment processing. Underwriters will be scrutinizing your entire business model. An MSP that understands the cannabis industry will be able to coach you on how to set yourself up for success from the beginning. For instance, an educated MSP will be able to help you audit your website for red flags. They will be able to advise you as to what your online presence should look like. And what it definitely should not include. This is where having a high-risk merchant service provider (MSP) who specializes in cannabis payment processing will pay off tenfold.
There is no more important time to have a reputable, educated, and transparent merchant provider.
While it is true that cannabis-related businesses have been treated unfairly, they are still able to get a merchant account. And, it is possible to legally accept credit cards when you have an experienced high-risk merchant provider.
Companies that provide products and services to the cannabis industry can get a reliable merchant account. And they can accept credit cards legally and transparently if they go about it the right way.
High-risk merchant accounts are a lot more strict and this can make them a bit labor-intensive. An experienced MSP will coach you regarding the proper documents you need from the start. You do not want the underwriter to have to keep asking for additional paperwork over and over again. You're much more likely to get approved when you have all your ducks in a row from the beginning.
Bankcard International Group is a proud supporter of the cannabis industry. We have solid solutions for cannabis-related merchant accounts of all types:
- cannabis lawyers
- marijuana doctors who provide cannabis recommendations
- trade show organizers
- T-shirt and clothing companies
- pipe stores
- packaging and labeling manufacturers
- cannabis website designers
- advertising and marketing companies
- cultivation supplies
- lighting companies
And just about anything else associated directly with cannabis companies.
We pride ourselves on fighting for domestic and transparent solutions for our clients. Have questions? Give us a call today. Allow one of our ETA -certified payment professionals to advise you as to the best solution for your ancillary cannabis service.