How Financial Services and Cannabis Companies Can Learn To Trust One Another

Financial services are much more than just a way to securely store and move money. At its core, they are about earning and maintaining trust.

Think about it: At the end of the day, there’s no physical product you’re selling in financial services. You’re taking money and safeguarding it or turning it into digital payment options. All of that requires trust in any industry, but it’s especially true in cannabis, where companies are rejected, burned, or cut off from financial services with regularity.

How do financial institutions (FIs) rebuild trust with an entire sector of commerce — and one of the fastest-growing industries in the United States, at that? You first need to understand why there’s distrust in the first place.

Why is there distrust between cannabis businesses and financial institutions?

In most industries, financial services are such a typical part of day-to-day life that trust is almost implicit. In cannabis, though, a long history of challenges accessing the banking system and basic financial services has led to distrust going both ways. Here’s a closer look at three main reasons for distrust and how they contribute to the often fraught relationship between the two industries.

Legal challenges

The fragmented regulatory landscape facing the cannabis industry, where states govern cannabis businesses differently and the federal government still considers it illegal, has prevented cannabis businesses from accessing even basic financial services to some degree. The result has been a messy relationship between the cannabis and financial industries characterized by a deepening distrust of one another. The confusing regulatory framework often leads to frustration for both parties. Financial institutions mistrust the cannabis industry, and cannabis operators distrust financial institutions.

As more states have legalized cannabis, access to financial services has improved. However, reliable access remains scarce in plenty of markets.

Federal prohibition also hinders access not just to banking but also to the services provided by credit card networks like Visa and Mastercard or mainstream payroll providers like ADP, who do not cater exclusively to the cannabis industry. It’s also extremely common among cannabis businesses to obtain financial services such as banking, electronic payments, and cash transportation, only to potentially have them ripped away with little to no warning.

It’s not just banking, but all the financial services a business needs that cannabis operators wonder if they’ll have access to. That leads some cannabis businesses to lie and pretend they’re not in cannabis in order to get service. That feeds the financial institutions’ mistrust of cannabis businesses, and that in itself can move a bank or credit union to close a cannabis company’s accounts.

Cultural challenges

In addition to the challenging legal landscape, there are some significant cultural differences between cannabis and traditional finance service providers that may reinforce hesitation to conduct business with one another.

Cannabis operators are pioneers and innovators. By nature, banks are meant to avoid unnecessary risk and are hesitant to take on something they don’t know much about. Those are two conflicting cultures that continually feed the distrust.

Working to meet somewhere in the middle can be beneficial for both bankers and cannabis operators. If cannabis operators approach financial institutions with complete, transparent data and all the business documents needed to access financial services, that can mitigate the risk concerns many financial institutions may have. And if financial services professionals understand that cannabis entrepreneurs are running legitimate businesses and have the same concerns as business owners in any other industry, the relationship between them can flourish successfully.

Educational challenges

Finally, the cannabis industry is still new, quickly evolving, and ever-changing, so plenty of bankers and financial professionals remain unfamiliar with the space. Many conceive it as a “wild west” with no rules, even though it is one of the most highly regulated industries in the country. There are fundamental misunderstandings that lead financial professionals to have serious misunderstandings about how the cannabis industry works.

However, more financial institutions are employing cannabis experts, establishing teams dedicated to providing services to the industry. As these professionals get up to speed and train their teams, cannabis operators and organizations like Green Check can serve as helpful resources to further education about the legal cannabis industry as well.

Rebuilding trust between cannabis and finance businesses

There’s nothing quite so important as trust when you’re asking someone to handle your finances. When businesses deposit their hard-earned money with a bank or hire a payroll provider to ensure their employees are paid properly and on time, they’re trusting them with their most important resource.

Businesses suffer when cash flow is interrupted and it’s the responsibility of these financial institutions to provide safe and reliable services that keep business operational. The simple act of choosing a financial institution to work with is a statement of trust on the part of a business owner.

Although the relationship between cannabis businesses and financial institutions hasn’t always been healthy, we can change the dynamic. Both financial institutions and cannabis operators can help improve the way the two industries work together, and Green Check stands as a powerful ally to bridge the gap between them.

What can financial institutions do to rebuild trust?

Financial professionals should bear in mind that cannabis operators are legitimate business owners. They should be treated with the respect all clients deserve. While due diligence is important to ensure anti-money laundering (AML) and know your customer (KYC) compliance, it should be a partnership, not an interrogation.

Cannabis operators have been burned in the past, so don’t be afraid to reassure them. Let them know that you’re happy to work with businesses like theirs. Be clear about the information you need from them and why it’s needed for you to successfully support their operations. Assure them you won’t pull the rug out from under them and cut off their much-needed financial services without notice, as many of them have likely experienced in the past. Most of all, remember that handling a business’s money means they trust you, so be proactive and communicative with them at all times.

What can cannabis business operators do to rebuild trust?

Cannabis operators can improve their relationship with financial institutions by having organized and comprehensive documentation about all their revenue, expenses, and taxes. Being totally transparent with banks and financial service providers from the very beginning will help expedite application approval and onboarding, as well as engender trust in the relationship. Now that the option exists to go to a cannabis-friendly banker, go to one. Most importantly, don’t lie to the bank.

Cannabis businesses should also make sure their financial institution partner has full visibility into product sales and inventory, tying in data from point-of-sale systems and seed-to-sale tracking systems.

Relatedly, the more information an FI has about a business’s activities, the easier it is to demonstrate that it is a legitimate business that derives its income from legal, licensed activities. But it’s not up to the bank to know everything up-front. Cannabis operators should actively work to educate their FI partners and ensure they understand the precise nature of their business and its role in the cannabis supply chain.

Building better cannabis financial services through trust

At Green Check, we’re working to help change the fraught relationship between the finance world and the cannabis world. We bring financial institutions that want to work with cannabis businesses together with legitimate, verified cannabis operators who need this support to grow their business. We offer basic money services to cannabis businesses, supporting zero minimum accounts and QwickPay instant ACH transfers. We also empower both financial institutions and cannabis businesses with comprehensive, granular data to improve business decision making and performance tracking.

Both the cannabis and financial service industries have a big opportunity to build a better future for cannabis financial services by learning to trust one another. At the core of this opportunity is a growing regulated cannabis market and unprecedented access to data that can demonstrate a business’s legitimacy. The financial institutions that seize this opportunity and work together with cannabis operators will have a competitive advantage in an industry with huge growth potential.

If your financial institution is ready to support cannabis operators, Green Check is here to help connect your financial institution with verified legal businesses. Learn more about how Green Check can help support your ongoing monitoring and compliance needs, or how the Green Check Connect marketplace can help cannabis operators in need of your services find you.