If you’ve been around the marijuana business at all, you know that cannabis banking is about as big and far reaching as credit card banking. It’s also about as debatable as mortgage banking, though perhaps not as controversial. Many wonder why banks are even allowing this type of financing, as marijuana is not officially recognized by the government as a legal or profitable form of cultivation. Many argue that banking on marijuana is simply a matter of doing what the banking companies do best-laying their money down. While that is one argument, other advocates argue that the banking industry has for years given marijuana a bad rap, and that opening the doors to cannabis banking could help change the perception of this illegal enterprise.
Just like the majority of states in the U.S., marijuana is against the law, and banks cannot handle any amount of cash tied to it. However, banks do not have to outright ban the trade, and some are starting to openly back away from it. Colorado, for example, has long had laws prohibiting marijuana but in 2010 the state government announced a plan to begin licensing businesses that would distribute marijuana. At the time, no banks were expected to start providing marijuana loans, but now those banks are starting to get involved.
One of the reasons why banks allow marijuana banking is that it doesn’t take much risk for them. Unlike most other types of finance, marijuana businesses don’t require large amounts of money to get started, so there’s no need for a large amount of upfront funding. Since the banking industry is regulated by federal law, even persons who are involved in the marijuana trade can get involved if they follow the law. In fact, it’s actually easier for marijuana businesses to stay out of trouble than it is for other small businesses.
The first reason why banks allow marijuana businesses to take out loans is because they have very low risk tolerance. Since marijuana is not seen as an illegal enterprise, banks don’t feel obligated to put a lot of money down on a business that may fizzle out several years down the road. In many cases, the only money that’s required to get started is about two hundred dollars. Since banks don’t view marijuana businesses as high risk investment opportunities, they don’t have a huge problem providing such a loan.
Another reason why banks are starting to open their doors to cannabis businesses is that they want to serve as an intermediary between the grower and the consumer. By opening an account linked to a growing business, the banks are making it easy for the consumer to purchase cannabis without worrying about being ripped off or going to a bad business. If marijuana businesses don’t do well, at least one of the big financial institutions will be out of business.
Finally, marijuana banking allows consumers to gain access to a legal cash product that is created for adult use. By eliminating credit card transactions and the problems associated with the illegal drug trade, marijuana will become easier to obtain without the associated risks. When you combine this fact with the ease with which banks can now provide cannabis banking, there’s really no reason not to try it out.