What is a CBD Friendly Bank?

By Eric Ives
October 14, 2019

In the past few years, CBD has exploded onto the market. Cannabis and cannabis-related products have become big business. It’s…

In the past few years, CBD has exploded onto the market. Cannabis and cannabis-related products have become big business. It’s no secret that purveyors into this expanding niche have incredible prospects. Cannabidiol, or CBD, is an ever-expanding product, and new research is uncovering the myriad of ways in which it can be beneficial. It has become a popular option for those seeking to create a thriving business, due not only to CBD’s versatility, but also its current legal status.

Most recently CBD and CBD-based products were banned by the United States government. In fact, marijuana was listed as a Schedule I drug, along with the likes of heroin and methamphetamine. Being listed as such made it illegal to use, sell or possess marijuana or marijuana derivatives.

However, some states have passed legislation that has legalized the use and sale of marijuana and cannabis-related products. Despite this milestone, those seeking to sell marijuana have to contend with states where it is still considered illegal. In states where marijuana is illegal to use or distribute, simply crossing state lines with such a product can incur jail time and charges.

In 2018, the Farm Bill was signed into law by President Trump. Under this new law, hemp-based products have been redefined. It is no longer unlawful federally to use, sell or distribute hemp-based products. However, this is only hemp-derived components, and these components must contain less than 0.3% THC.

THC is the psychoactive ingredient in marijuana. CBD is distinguished from it due to its non-psychoactive properties. State laws still must be observed on the legalities of marijuana and other marijuana-derived items.

This can make it incredibly difficult for individuals seeking to set-up a company related to marijuana, or even CBD. This is because it is difficult not only navigating separate state and federal laws, but it is also very difficult to get approved for business bank and merchant accounts. CBD businesses are considered to be engaged in selling a high-risk product.

There exists a small (but growing) number of specialty bank account and payment processors that will work with CBD-based businesses. However, many of these banks and payment processors require these businesses to open offshore accounts, which can often lead to a tedious process with gray-area legalities in regard to U.S. laws. As a result, some CBD merchants opt to use apps such as Cash App or Paypal. However, this can cause a number of problems once the true nature of your business is discovered.

Full legalization seems to be looming on the horizon, and any financial institutions have become laxer on certain restrictions. This is not across the board, though, and many CBD producers and sellers find themselves in a quagmire of legal vs. illegal in the battle to simply run their businesses day-to-day. It is not unheard of for accounts to be suddenly closed or heavily restricted.

Why Should You Use a CBD-Friendly Bank?

Obtaining a business banking account, including a checking or savings, is fundamental to the health of any business. As a business owner, you must have a way to keep your funds safe and entrusted. To be viable in this tech-savvy society, you must also be able to accept credit cards and other payment methods online, which often requires the help of a third-party vendor or payment authorizer.

These funds are then deposited into an account which hopefully is insured and monitored by the FDIC. Many CBD-based businesses find that this process isn’t always cut and dried when it comes to traditional banking and payment processing. Instead, many of them are seeing a surge in these companies turning their business away.

However, many financial institutions are beginning to see the upside to supporting expanding CBD-based companies. Some major players are reassessing their former stances and have become friendlier towards accounts that represent companies which sell and distribute CBD products. Banks are working with subsidiaries to bring many of these goods to the American market and all over the globe.

Even if you find a CBD-friendly bank or payment processor, stay abreast of changing legislation and laws as well as studying the regulations of the bank you work with. Often, banks can come under fire and can drop accounts related to CBD, leaving many business owners in a lurch.

In the case of Elavon, a nationally recognized subsidiary of U.S. Bancorp, CBD-based account holders were recently given a 45-day notice that it would be closing them down. Many of these shutdowns have the unintended consequence of deterring others who may want to come into the market.

What are the Perks of Finding a CBD-Friendly Bank?

One of the biggest perks of finding a CBD-friendly bank includes the ability to do business daily. You can deposit and withdraw funds, seek loans and invest. Finding a bank that is willing to provide these services at a reasonable rate is a boon to any CBD-based business.
Other perks include:
Monthly Contracts: A bank that is CBD-friendly may include a contract you can easily walk away from. Anything that includes a locked-in amount of time (usually a year or more) may also include fees that can be incurred for terminating early. Some of these contracts can automatically renew, and CBD business owners may find themselves on the hook again for another year or so.
Cost of Business: Working with a CBD-friendly bank means a lower cost of business. You don’t want to be charged an astronomical rate for higher fees, including an annual fee and those regarding a monthly minimum balance. Some CBD-based businesses often have to contend with banks that engage in certain tiered pricing models and other practices.
Allocated Card and Card Terminal: Every business needs a credit card that is connected to their account. Not having one can deter a business from having financial solvency. A card is needed at any ATM, to make payments online, and for any number of other financial transactions. Selling CBD products at a store or kiosk will also require you to have a credit card processing machine or app that can connect through a third-party vendor to your bank account. Each credit card processing machine or app should be able to read a customer’s card. You should also use a trusted and reliable bank that can back you up if there is a problem or issue.
Customer and Web Support: Selling your products should also come with the convenience of doing business online. A bank and payment processor that is trusted, secure and CBD-friendly can offer customer support and web support for your website when there are payment issues. Having a CBD-friendly bank can help to reduce the anxiety around how you can deposit funds that are generated online or through an app.

A CBD-friendly bank will be one that will not only accept many CBD-based businesses, but also won’t charge them in ways that will have an adverse effect on their businesses. Having a bank account and a way to process payments is the backbone of any business.

For many, it’s an afterthought. However, in the space that CBD occupies in regards to legality, business owners have to be incredibly mindful of who they bank with and how. It can mean all the difference between a profit margin and consistent losses.

Where Can I Find CBD-Friendly Banks?

Now that you know a little bit more about the CBD business and banking, your next question may include just where to find CBD-friendly banks. Unlike most business owners, you can’t simply find a bank that’s on the corner near your home or office or one that advertises on television. You may have to do a few things and observe a few key steps to find a bank that works for you.
Research: There may be lots of options when you plug in what you’re looking for online, but don’t be fooled by a splashy website. Do research on the bank and/or payment processor. See what others are saying about how they operate and if their daily practices are commensurate with what they advertise.
Get Opinions: If you’re in a community of like-minded individuals, try to network and see if there any options that would be good for you to use. Getting real world people to give you their opinion can prove to be invaluable as they may know you and your business goals and can appreciate where you’re trying to go. It’s important to build a strong network of people you can talk to about the CBD industry.
Look at Other High-Risk Industries: Other high-risk industries use banks and payment processors regularly for their operations. These industries include the e-cig and vaping industries. Try to find out what banks and payment processors many of these companies utilize on a day-to-day basis. Use this knowledge to then think about if any of these options are right for you.

Final Thoughts on CBD Banking

Deregulation of CBD products may soon prove to be great for the American economy. However, in spite of its potential, business owners who work with CBD must be wary of their individual state laws with regards to how they sell and distribute their items. It has never been easier to get a bank account and payment processor for CBD products and it’s a great time to be in the cannabis market.

Getting into a CBD business is not without its issues, though, and this would include finding a trusted bank and payment processor that can work with the bank to give you your funds. Finding one may be as easy as doing a little research, talking with those in your industry, and looking at some other high-risk industries and how people operate there.

If you find what you are looking for, be aware that there are things that change constantly, so be sure to carefully observe what your bank and payment processing rules are. The important thing is to research, become knowledgeable about legislation, and stay informed regarding any notifications or rule changes from your financial institution.
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