The cannabis and CBD market has exploded in the past few years, with regulators and lawmakers all shifting towards a positive stance for the medicine. However, banks have struggled to keep up the pace.

CBD entrepreneurs and shop owners in the US are reporting of having their personal and business bank accounts closed for good, in some cases including their relatives and spouses. There are also reports from business owners in Europe stating that their PayPal accounts have been closed down.

Why are banks penalising CBD entrepreneurs?

70% of the cannabis industry within the US doesn’t have a bank account according to a startling report by inc.com.

With the federal government overseeing all US banking establishments and credit unions, they are extremely hesitant to offer cannabis businesses accounts as a result of the current legal status of the compound.

US banks are required to file costly reports to the government about suspected suspicious or illegal activity being committed by customers, which can subject banks to potential seizure and large fines from the FDIC if they incorrectly report on the illicit transactions. These reports are often subject to intense scrutiny as they can be extensive and one single incorrect statement can bring the hammer of blame down onto the bank.

With the majority of cannabis businesses currently not holding bank accounts and operating on a cash basis, this becomes a challenging job for law enforcement and officials to impose the law as there is less evidence available about the how companies operate. Therefore, a solution needs to be a priority to enable the industry to continue its vital innovation.

US Senate hearing – challenges for cannabis and banking

Highlighted in last week’s live-streamed senate hearing on the topic of banking and cannabis led by elected government officials, who consulted with business owners to see what issues they currently experience, witnesses attested to the challenges some face in states where cannabis is currently legal.

It appears to be becoming a huge challenge considering cannabis is still federally illegal nationwide, however lawmakers are being urged to update the federal laws to give the sprouting industry access to financial services and thus room for expansion expand.

So far it seems doubtful that the chamber will approve any major reform anytime soon. Director of Ohio state University’s Drug Enforcement and Policy Center, Douglas Berman, said: “I remain pessimistic unless and until somebody signals to me that either Sen. McConnell, as the leader of the Senate, or his caucus is strongly supportive” on the subject of possible reform.

Optimistically however, a main focus of the conversation was the Secure and Fair Enforcement Banking Act (SAFE), a legislation that could allow banking establishments to serve authorised cannabis-related companies without fear of federal prosecution.

A widely held concern of both businesses and numerous lawmakers is the fact that the often cash-exclusive cannabis industry would lead to public safety risks and the potential of the industry returning to the hands of criminal groups.

Senator Sherrod Brown said at the opening of the hearing that “the legal cannabis industry is one of the fastest growing in the United States and employs hundreds of thousands of people. No matter how you feel about marijuana itself, we have a duty to look about for the workers who work in this industry and the communities they represent”.

Market traders hit it big from CBD stocks

Despite being seen as a kick in the teeth to nervous cannabis business leaders, many leading cannabis stocks experiences gains as high as 2% following the weighty senate hearing, as reported by Markets Insider.

Tilray, Canopy Growth and Aurora all traded higher after the hearing was released after initially falling pre-hearing, the suggestions of positive news seemed to provide a boost to top industry conglomerates.

Industries face similar issues

While CBD is struggling to deal with the ongoing banking issues, it isn’t the first industry to experience such problems. Gambling companies have also faced similar issues in the past, leading to many being forced out of the US and several other major European countries as a result of strict regulations. These strict laws eventually see companies seeking refuge in places like Malta, Gibraltar and Isle of Man, all of which have a light approach to gambling establishments.

More recently, the developing cryptocurrency industry has had several leading exchanges face struggles in gaining a banking arrangement. Namely Bitfinex, currently one of the largest cryptocurrency exchanges, had their bank account with HSBC closed before switching to Bahama-based bank, Deltec, although concerns about their banking arrangements continue to persist.

Common banks could see their long term successes start to dwindle as the rise of FinTech companies such as Kind Financial and Tokken are beginning to develop software to allow for cannabis businesses to track transactions and move away from solely utilising cash.

Arizona-based FinTech start-up Hypur has created a software platform that can audit a cannabis company entirely to ensure its legality and whether it is running in compliance to present regulations. This innovative solution has enabled a number of undisclosed banks to become convinced to take on clients within the cannabis industry.

The cannabis industry may feel encouraged to see the senate discussing the crucial banking issues, however more still needs to be done to prevent a drive away from innovation in the emerging field.

Could the cannabis industry be driven back underground?

Continued uncertainty surrounding the regulatory status of cannabis andCBD could drive the industry underground once again, back to an unregulated environment with untested products resulting in potential harm to consumers.

Cannabis entrepreneurs have been striving towards a legal and regulatory sound environment, but while banks continue to close down bank accounts, the foreseeable future remains clouded. Businesses will be forced to take a step back and use untraceable cash, ending in an increased risk of robbery and also enabling an environment rich for criminal taking.

In light of the FDA receiving comments, this major stumbling block for the industry must be tackled and banks must innovate before an inevitable descent back underground, which would see halt of innovation and loss of national profits and jobs.