The cannabis banking dilemma extends much further than simply needing a place to deposit sales revenue. Payroll and benefits plans also need bank accounts, which in turn face compliance scrutiny when cannabis is even remotely involved.
More than 21,000 Suspicious Activity Reports related to cannabis were filed with FinCEN in each of the first three quarters of 2024, according to data from the U.S. Treasury, leaving the industry on pace to break 2023’s record 79,397 SARs for the year.
It is possible, and fairly common, that a cannabis business owner uses multiple bank accounts for different purposes. One could be used for sales deposits, which are then transferred to another account for payroll or other operating costs. This separation can lead to operators wrongly assuming that they do not have to disclose relationships to cannabis for every account, according to Marc Rodriguez, chief executive of Green Leaf Business Solutions in Vista, Calif.
Even if a bank account exclusively handles payroll, rather than direct payments for cannabis, they can still be flagged for suspicious activity if the dispensary fails to disclose the full nature of their business when opening any related bank account.
“We’ve seen this happen more times than we’d like,” said Rodriguez. “One cannabis company we worked with thought they were in the clear by using a payroll processor that funneled funds through a third-party bank account. But because the underlying business activity was cannabis-related and the bank didn’t have a clear line of sight into that, the account was flagged and shut down with less than 10 days’ notice.”
Rodriguez recounted another instance where a dispensary owner misrepresented the fact that his business sold cannabis on his banking paperwork. The bank found out and the account was terminated mid-cycle, leaving the employees unpaid.
“These disruptions don’t just create headaches – they can lead to missed paydays, tax filing penalties, and serious compliance issues with both state and federal regulators,” he said.
Retirement savings for cannabis workers
Retirement plans can also be a regulatory nightmare, given the need for multiple banks.
Some states require businesses to offer a savings plan of some sort for employees, which includes 401(k) accounts. Those states include California, Colorado, Connecticut, Illinois, Maine, Maryland, New Jersey, New York and Oregon, which also all have legal adult-use markets. In many of those cases, operators have had to resort to state-sponsored or state-sanctioned programs that specifically allow cannabis companies, such as CalSavers and OregonSaves.
Earlier this year, Green Leaf launched GreenPath 401(k), the industry’s first 401(k) plan that exclusively serves cannabis companies.
“Within just the first quarter of launch, we’ve on-boarded over 40 cannabis companies onto the GreenPath 401(k) platform,” said Rodriguez. He added that a variety of different types of businesses from across the cannabis supply chain sign up.
There have been previous program providers, but cannabis was always just a component to their respective business, such as at Matrix Trust Company.
On one hand, serving diverse industries made it easier for Matrix Trust to also serve industries with less risk than cannabis. The drawback is that it also makes it easier for a company to stop serving cannabis, as Matrix Trust did last fall.
“There’s a real appetite for employee benefits in cannabis right now, and for the first time, companies feel like they can offer competitive retirement options without navigating a legal minefield,” said Rodriguez. “For many of our clients, this is the first time they’ve been able to provide a 401(k), and it’s becoming a key tool in attracting and retaining talent.”
First Citizens Bank grows in industry
Despite financial companies moving away from cannabis, Green Leaf benefitted from a major shift in the other direction, with Raleigh, N.C.-based First Citizens Bank.
“They’re getting into more and more cannabis and continuing,” said Green Leaf Chief Revenue Officer Tyler Priest. “They’ve had a CBD division for a long time. Now they’re starting to work towards tier-one plant touching companies. They are really pushing the envelope to be a partner in the space, and that’s why they are a part of this solution.”
“First Citizens had to see that cannabis payroll and benefits could be managed with full transparency – especially around ACH flows, KYC [know your customer], the Bank Secrecy Act and compliance rigors. We shared detailed controls and processes, showing how employees would be supported, funds would flow, and compliance would be maintained every step of the way,” added Rodriguez. “In short, it involved months of open dialogue, joint compliance reviews, process mapping and mutual risk assessments.”
