24 Aug How Can Your Cannabis Business Secure the Banking and Payroll Relationships Needed to Operate Optimally?

Although marijuana is legal in specific states, it is still considered illegal under Schedule I of the Federal Controlled Substances Act. Because of this, many cannabis businesses continue to struggle with everyday operations like securing trusted banking relationships and legally paying their staff. Finding a trusted provider is an additional issue. A cannabis business can be in good standing and abiding by regulations, but because they’re operating in an industry considered as high risk, they may not be offered the same services as a non-cannabis business. How can businesses overcome the banking challenge and find the right provider? We’ll explore the banking challenge further, discuss how workarounds are increasing risk, and how to ensure cannabis businesses can partner with the right providers to operate optimally and compliantly.

A Retrospect on Cannabis Banking Challenges

There is no specific law that restricts banks from serving cannabis clients. Moreover, the Secure and Fair Enforcement Banking (SAFE) Act of 2019 created protections for financial institutions that provide banking services to “legitimate marijuana-related business.” But, regardless of the protections in place, banks remain wary about the potential risks of working with a cannabis business.

It’s important to note, however, that a refusal of service is not solely because marijuana is considered federally legal. Although, that certainly plays a part. It’s also because there are different (more extensive) set of procedures to onboard and serve a cannabis client according to banking regulations. Banks typically have to hire additional staff to manage steep regulatory requirements and ensure that operations comply with the Bank Secrecy Act and Anti-Money Laundering Act. “The additional work translates into higher cost. Banking fees can range from $500 a month to $2,500 a month or even 1% of gross revenue every month.” Even if a bank chooses to work with a cannabis client, costs can add up and the relationship no longer makes sense from a business perspective.

Workarounds That Put Cannabis Businesses at Risk

Not having reliable support from the financial sector affects cannabis operations. Businesses are unable to establish a proper business bank account, process employee payroll, or offer different forms of payment for customer transactions. Yet, cannabis businesses have almost become accustomed to these challenges. Instead of letting them impede their growth in the industry, businesses have started finding workarounds and alternatives to ensure they can continue operations. But, unfortunately, many of these options only put cannabis businesses at risk.

For example, many cannabis businesses have started running cash-only businesses, paying employees in cash and only accepting cash on customer transactions. While it provides acceptable workarounds, it also puts the business at risk for theft, especially internally. In fact, roughly 90% of financial loss in the marijuana industry is attributed to employee theft.

Cannabis and cannabis-related businesses are also often advised to avoid mentioning their involvement with cannabis to be able to establish financial relationships, especially with a payroll provider. This may work out for a while, but big banks nearly always discover the true identity of the cannabis business. They conduct routine audits and learn the connection with a cannabis or cannabis-related business, which often leads to cutting ties with the client.

Finding the Right Provider to Overcome Cannabis Banking Challenges

Cannabis businesses have to navigate through several common cannabis banking challenges. Finding the right provider to support their business adds another obstacle. Cannabis businesses have to watch out for the foul players in the industry who are only responding to the demand for cannabis service providers, yet lack expertise and offer a limited amount of services at a high cost.

Cannabis businesses must also consider that bigger is not better. A recent industry trend shows that big-name providers are abruptly dropping their cannabis clients, causing tremendous business disruption and making the business unconfident in their search for a new provider. ADP, Bamboo HR, and Paylocity are just some of the providers that do not support the cannabis industry and have been known for severing ties with their cannabis clients.

It is critical to find a trusted provider that protects your investments and assets through legitimate banking services, manages human resources (including payroll and benefits), and can ensure your business stays compliant with every legal aspect, from employee law to the 280E tax law.

Work with a PEO That Serves Cannabis Businesses

OROleafhr understands the ongoing challenges many cannabis businesses are facing, including banking, payroll, and compliance. We partner with you to learn your business’ needs and connect you with the established banking relationships and technology infrastructure to support your business. OROleafhr is also skilled in cannabis law and protects your business from compliance error. Partner with OROleafhr and enjoy cost-effective, full-service HR management and compliance support.