Why Don’t Large Banks Process Marijuana, THC, & CBD Purchases?
Vector Payments specializes in payment processing for THC and CBD businesses in part due to the complications that CBD and THC companies face with banks. Many people come to us wondering why banks won’t process THC and CBD purchases, after all, this is a growing industry that brings in billions of dollars every year. Where else is all of that money supposed to go, and why are banks refusing to work with THC and CBD companies although it is a legal product to sell either medicinally and/or recreationally in over half of the US states as of 2020. To get to the bottom of it, we have to take a look back at the history of marijuana in the United States at the federal level, and piece together how banks operate considering federal laws.
Marijuana and the Controlled Substances Act of 1970
Although many states have legalized the medical and/or recreational use of THC products, Marijuana is still very much illegal on the federal level. During the Nixon era in the 1970’s, the Controlled Substances Act was signed into law – which was only the beginning of Marijuana’s complicated (and frustrating) federal history in the United States.
Under the Controlled Substances Act, drugs, substances, and certain chemicals used to produce mind-altering substances were classified into five categories or schedules depending upon how the US Government deemed the drug’s acceptable medical use or dependence potential. Schedule 1 drugs are considered to have a high potential for abuse, whereas schedule 5 drugs represent the least potential to abuse. Marijuana is now widely used and accepted for everything from it’s incredible life-saving medicinal uses (including those for pain reduction, epilepsy, cancer, & crippling anxiety) to the commonly known recreational chilled out, euphoric effects. Regardless of decades of research and a general societal acceptance of THC, Marijuana is still shockingly considered a Schedule 1 drug in the United States (alongside the likes of life-threatening & extremely dangerous drugs like meth & heroin), 50 years after the Controlled Substances Act was signed into law.
Federally Regulated Banks and the Controlled Substances Act
Now, this is where the payment processing complications that both small and large Marijuana businesses experience with banks comes into play. Many THC companies that Vector Payments consults payment processing with often ask “Why can’t I get a bank to help me with my marijuana, THC, and CBD business?”. Normally, major banks would provide easy and accessible access to funds to support businesses, especially companies as lucrative as those operating in the $52 billion cannabis industry. But, when it comes to businesses related to marijuana, banks are very much behind the times and still recognize the Controlled Substances Act. These banks state that if they are a federally regulated institution, they refuse to “process payments for businesses participating in federally prohibited activities”. For the few banks that do welcome businesses in the cannabis industry, these institutions put themselves at risk of being seized by the FDIC.
Banks are gradually learning how this industry works and are beginning to get more actively involved, but they are operating at a snail’s pace right now sorting out all of the federal complications and politics involved. Boards of Directors, shareholders, and proper compliance is required to make sure the banks don’t violate any FDIC rules, and no banks are willing to risk losing their charter or FDIC insurance at the cost of working with THC or CBD companies regardless of how booming the business is right now. Due to these complications, the opportunity for THC and CBD companies to work with federally regulated banks will continue to be a gradual process over the next few years.
CBD And The 2018 Farm Bill
What makes this even more complicated and confusing for many businesses that come to Vector Payments for payment processing consulting is that the Farm Bill passed in 2018 which legalized hemp, and CBD is a hemp based product. While it is true that the 2018 Farm Bill did legalize and deschedule hemp, the issue is that they never categorized anything involving CBD. Yes, the majority of CBD products are derived from hemp plants, but that doesn’t change the fact that they merely descheduled the hemp plant itself, whereas oils, edibles, etc. are not considered a part of this situation. Now, if you’re reading this blog and operating in the CBD or THC industry, you know that hemp and hemp products don’t get people high, THC does. Unfortunately, it takes some time to “normalize” an industry or even a specific product after decades of being considered a federally illegal Schedule 1 narcotic like we explored earlier in this blog.
Where is all the Money Going?
Now, you might be wondering – if this is a multi BILLION dollar industry, but banks won’t work with CBD, hemp or THC businesses, where is all of that money going? The reality is that a majority of these businesses do have a bank account with one of the major banking institutions, but the bank may not truly know what they’re selling or the industry they are in, especially if they don’t have CBD, Hemp, THC, or marijuana in their name.
Obviously, this is an option for any businesses looking to sell CBD/THC products, but this comes with an inherent risk. Due to the complications we explored regarding the federal legalities surrounding marijuana and hemp products, if the bank eventually finds out where that money is actually coming from, companies risk getting their account shut down or worse, funds frozen until they complete a proper audit on the account to report properly to their compliance team.
So, How Can my THC/CBD Business Operate and Handle Payment Processing?
It’s all incredibly complicated, confusing, and behind the times, isn’t it? One would think that banks would want to do business with one of the fastest growing, profitable, and booming industries like recreational, medicinal THC & CBD. Even though each state has the right to treat marijuana however it wishes, federally speaking, cannabis is still very much a part of the Controlled Substances Act. Federal laws and a slow-paced adherence to the modern reality of our society’s acceptance and legality of Marijuana and CBD products makes difficulty working with banks a reality for all businesses in this industry.
While all of this is understandably frustrating for all of the companies Vector Payments consults with, we have a myriad of solutions for your company that will keep you free and clear of the banks, and without worry of getting your business’s hard earned money frozen. (Maybe link the Top 5 Payment Options For Cannabis Merchants blog here?) Let Vector Payments help you set up your business and thrive in this booming industry! We will help guide you every step of the way.