Owners of all cannabis-related businesses in the US face a serious obstacle that most businesses in any other industry take for granted—lack of access to common banking services. For now, cannabis production and retailing are only legal under certain state’s laws while, under federal law, substantially all elements of this burgeoning industry are illegal. And since all US commercial banks and credit unions need access to communications and wire transfer systems that are owned, overseen, or regulated under federal law, banks and credit unions are (with rare exception) unwilling to put their business at risk to repercussions from federal regulators by providing prohibited services to cannabis companies.
As the federal government changes its laws and rules over the next few years, we expect an increasing number of cannabis-related businesses will have access to the usual business banking services. Unfortunately, the problems of running a cash-only business have to be dealt with by the cannabis industry now.
While the failure of Fourth Corner Credit Union to get regulatory approval to openly bank the cannabis industry has been widely reported, other ways will be found to deal with this problem until federal regulations change. And demand for these solutions can only rise, as cannabis industry revenues continue to surge and growers, distributors and retailers find themselves with pockets full of unwanted cash. (Yes, it’s hard to imagine that a company can have too much cash, but carrying around pockets full of it is not normal business practice and invites numerous problems.)
We recently came across a company that’s providing a potential solution—Scottsdale, Arizona-based Hypur. Hypur’s technology allows the entire chain of interested parties (the banks themselves, the companies who use the technology and bank regulators) to keep track of all cash flows into and out of a bank account – where the cash came from, the underlying transaction, who was involved, where outgoing payments are made, etc. This “transparency” in each bank transaction solves one of the major problems that causes bank regulators so much worry—cash is hard to keep track of, so it’s hard to know where it came from or where it’s gone to.
For example, since 1986 large cash deposits (greater than $10,000) into a US bank account have to be reported immediately by the bank to regulators and law enforcement. This regulation was introduced as a way to reduce money laundering by criminal enterprises (which, for obvious reasons, prefer to do business in cash), but the successful cannabis companies who regularly take in large quantities of cash in the daily operations raise a red flag for bank compliance officers and regulators with every deposit.
Hypur’s technology automates all the information banks want to track related to cash transactions, reducing the possibility for reporting errors and speeding up the reporting process. Hypur’s solution is not perfect—it addresses one factor in the regulatory puzzle that has to be resolved before cannabis companies will have full access to banking services. But we will certainly see other innovative solutions from the private sector long before regulators allow banks to treat cannabis companies like any other legitimate business.
In this space I have talked about the attractiveness of investing in the companies that provide services to the cannabis industry. Hypur is just such a company. Most of these innovators are privately-owned right now, but we’ll see many of them coming to market via crowdfunding or other means over the next year and beyond so their owners can cash in on their innovations.