Will cannabis-focused banking finally see a win?


The cannabis industry is booming with at least six new states legalizing the use in some form since the beginning of 2022. Delaware, most recently joining the ranks to bring the count to almost half the US. Despite state laws clearly supporting a legal market, cannabis remains on the Federal controlled substances list, making it illegal to “traffic” the substance.

What does that mean for cannabis business owners? Lots of headaches when it comes to accounting and banking rules.

280(e) is the formidable tax code that disallows any deduction or credit for a business that is trafficking in a federally controlled substance. In addition to facing this challenging tax battle, legal cannabis businesses are also prevented from opening an FDIC-insured bank account.

The reason? Money earned from trafficking is considered to be “laundered”. While these are scary accounting words, the Federal government did agree not to press charges against legal operations related to laundering, however, it still has not resulted in any form of legal banking.

The SAFE Banking Act was proposed multiple times last year in an effort to try to establish banking rules to serve these legitimate businesses. The lack of banking resources has created headaches for accountants and business owners alike.

The industry has resorted to hopping between multiple bank accounts, credit cards and an abundance of cash, making bookkeeping and tax preparation a significant challenge when it comes to documentation.

As of this week, the proposed legislation may finally get its day in the sun. The newest bill was sponsored by two senators, one democrat and one republican, in a bi-partisan effort to try to get this multi-billion-dollar industry the banking services it desperately needs.

The bill passed the House seven times in the past but has never made it through the Senate.

Beyond just convenience, the lack of banking has been cited as the reason for safety issues at legal cannabis operations around the country. The businesses become targets for cash when it’s well known that most of them must keep safes on premises with huge amounts of cash and questionable security systems.

The currently proposed bill would bar federal regulators from taking punitive steps against banks who provide services to legal cannabis businesses. The bill has huge support in the industry, but it remains to be seen if 2023 will be the year it finally becomes law.

Currently, banking issues even extend to employees of legal cannabis businesses who have lost their personal bank accounts and been denied mortgages for homes because of where their paychecks come from.

If your practice is not currently serving the cannabis industry keep your eyes open for more training coming Tax Practice News later this year. This growing industry is significantly underserved by knowledgeable accountants currently and facing massive challenges related to their taxes and business operations.

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