4 Tips For Getting a Bank Account For Your Cannabis Business
Here are four tips that can help your cannabis business get and keep a bank account for your business
Getting a bank account remains to be one of the most challenging aspects of running a cannabis business, despite being legal on a state level in a growing number of places.
As of July 2019, there were roughly 630 banks and credit unions serving the U.S. marijuana industry.
4 Tips For Getting a Bank Account for Your Cannabis Business
TIP #1: Keep Your Company Separate From Your Brand Name
For banking purposes, don’t include any “cannabis terms” as a part of your company name. If necessary for product branding, make your brand name “cannabis-friendly.”
Leave the fun, playful names for your cannabis products and brand name. Instead, give your company a name that will not invite red flags when reviewed by your bank’s compliance department.
Think of your “cannabis name” as a brand name and not the company name.
Banks are not concerned with your brand name or your brand identity but are concerned with doing business with a company that may appear to operate in the “black market.”
Follow these tips on naming your company if you want to avoid trouble.
Leave out slang terms for cannabis that may cause issues.
To be taken seriously by a bank, leave these and similar out of your company name.
For example, 420, maybe a day worth remembering, but putting 420 in the name of your business is not going to help you when you attempting to open a business bank account.
Make the legal name for your business unique but not generic.
Again, when working with a bank to set up your account, you want to keep the focus on your company name, not your brand.
A popular naming convention is to combine your initials with LLC or Inc. So, “RMMLLC” or “SSBInc.” Following this naming convention still allows for individuality but isn’t likely to cause an issue from opening an account.
TIP #2: Set up two bank accounts
We included this tip as we consider this to be one of the best practices we commonly recommend. Opening two bank accounts allow your cannabis business to have a bank account focused on the high volume of cash deposits you’ll likely to receive and a separate account used for paying the operating bills.
Account #1 – Use It For Cash Deposits
Dedicate this account for all your cash deposits coming in.
Due to the high volume of cash deposits involved in your business, Account #1 may get flagged for suspicious activity. By having two bank accounts, you’ll better be able to separate the cash received from daily deposits from the money required to pay bills.
Businesses in the cannabis industry, with a high volume of cash deposits, are at a greater risk of having their accounts flagged for suspicious activity. If your account is flagged, it could trigger a SAR (Suspicious Activity Report), discussed in this article published by the American Bankers Association. The results of a SAR review could mean that your bank could terminate its relationship with your business.
If your account is flagged, be prepared to show all the documentation related to your business such as;
- Permits and licenses for both State and City
- Expense reports and more
It’s essential to work with a CPA that will help your business build your infrastructure and a bulletproof audit trail which can help prevent you from being flagged or worse.
Account #2 – For payment of operating expenses
Dedicate this account for paying your credit card bills and other expenses.
TIP #3: Build a relationship with your banker
Build a personal relationship with your bank’s tellers and account managers. Take the time to meet them and speak with them and develop a personal relationship beyond the transactions.
Developing a strong relationship with your bank will strengthen their confidence in you and your operations.
Your bank’s confidence in that your operations are “legit” could mean the difference between the SAR being submitted or not.
Remember, the regulations created by the Financial Crimes Enforcement Network (FinCEN) weren’t meant to harm legal cannabis businesses like yours. These regulations were developed to deter fraud and detect criminal elements involved in money laundering and drug cartel activity.
TIP #4: Update your business name on your credit card statement
Make sure the company name that appears on the credit card doesn’t have the trigger words mentioned in Tip #1. Don’t include words like 420, Dank, W@@D, or other slang names
Follow the same naming practices for your credit card as you do for your bank.
Set it up, so that the company name you created appears on the credit card statements of your customers instead of your brand name.
By taking this step, you may prevent your customer’s or vendor’s bank from flagging your transaction. If the transaction with your customer is flagged for suspicion by your customer’s bank, they may communicate this issue with your bank, which then can trigger a SAR investigation.
While these tips are not a foolproof setup, they are a great beginning.
As always, keep your business compliant, pay your taxes, and continue building relationships within your community to ensure success.
Rema Washington, CPA