Federal Legalization Won’t Fix Cannabis Banking

federal legalization won't fix the cannabis banking problem
Illustration: mayk.75 / Shutterstock

Many people see federal cannabis legalization as the light at the end of the tunnel, believing a national market will cause the industry’s most pressing problems to vanish unconditionally.

One such pressing problem is severely restricted access to traditional banking services. The popular debate centers on whether the federal government’s acceptance of cannabis will lead big banks to flood the market. With legal risks gone, they would start offering their services to dispensaries, cultivators, and distributors, right? That would solve all the cannabis banking troubles, yes?


Unfortunately, that simply isn’t the case. In reality, the future of banking will look very different from what most might hope.

Big banks avoid other legal industries

Although it would be a groundbreaking step in the right direction, federal legalization is only the beginning of the industry’s battle for legitimacy. Nationwide legalization doesn’t mean large institutions automatically will welcome cannabis businesses. It’s unlikely Chase, Wells Fargo, Bank of America, and similar institutions will offer their services outright to dispensaries or plant-touching operators.

The issues around cannabis banking run deeper than one might think. This isn’t the first time an entire legal sector has faced reluctance from banks. In truth, many highly regulated industries in the United States have dealt with banking challenges.

Look at sports gambling as an example. The feds lifted the ban on sports betting more than three years ago, and half of U.S. states plus the District of Columbia now allow online wagers. Yet, big banks still aren’t touching the market.

Why? Big banks don’t want to risk facilitating illegal transactions that could result in punishment by federal authorities.

The state of  banking in Canada isn’t exactly reassuring, either. Despite the country’s legalization of cannabis in 2018, all types of cannabis-related businesses—plant-touching or otherwise—still struggle with every aspect of banking. They face pushback when applying for accounts, not to mention prohibitive above-average fees for privileges that are easily accessible to companies outside cannabis.

This gives us a glimpse into our future. The difficulties in Canada indicate our banking problems in the U.S. aren’t likely to disappear just because the federal government legalizes the plant. Traditional banking and payment solutions may not be available to cannabis businesses for years to come.

How lack of banking affects businesses

If you operate a cannabis business, you know the challenges that come with an absence of banking services. Business owners have a long list of hurdles to overcome, including the inability to access loans, deposit cash, refinance, or get a mortgage.

Today, operators can rely on a handful of small banks, but they are few and far between. It’s not easy to find them, and it can take some convincing to get them to work with you. Often, they come with strict stipulations or exorbitantly high interest rates.

Every business relies heavily on banking in order to succeed, especially the smaller ones—and there are a lot of small businesses in our industry. But these owners are being hung out to dry, in desperate need of help.

Now is not the time to sit idly by and hope for big banks to save us. We’ve got to think outside the box and create our own solutions.

What will fix cannabis banking?

The first step in solving any problem is understanding it. Because cannabis businesses face an uphill battle when it comes to finding safe ways to bank, and federal legalization will not be a magic fix, the solution lies in constant and strategic evolution.

We know big banks won’t be stepping in to support our operations in the near future. But we will see a network of small and medium-sized banks coming together to create a banking industry for cannabis.

The benefits are twofold. Smaller banks can use cannabis businesses to help them grow and gain a leg up on bigger competitors. Meanwhile, dispensaries will be able to secure loans, deposit cash, and operate as any “normal” business would.

It may take a few years for national banks to warm up to the industry—but this is cannabis, after all. Everyone involved shares a powerful passion for the plant that drives us to support one another in reaching our goal of legitimacy. If the previous few years have proven anything, it’s that the industry has a special way of making it through whatever challenge gets in its way.

We have the power to shape this industry in the best possible way so businesses—from mom-and-pop shops to multistate operators—are set up to succeed. We can all triumph, but we have to come together to solve our banking crisis first. 


Kyle Sherman is founder and CEO of Flowhub, a dispensary business-management and point-of-sale platform serving more than 1,000 retailers across North America. Named a Top 100 Cannabis Leader by Entrepreneur, Sherman led Flowhub through $50 million in venture capital raises. He was an associate producer for the Netflix documentary Weed the People.