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Anti-Money Laundering Rules in Cannabis Payments

May 2, 2022
Adam Glogovsky

Dispensaries do not have it easy when it comes to cannabis banking. As long as marijuana remains illegal at the federal level, financial institutions must comply with strict anti-money laundering regulations when involved with the cannabis industry – especially with plant-touching businesses. 

While there are currently 47 states that have legalized cannabis in some form, the plant remains a Schedule I substance due to the Controlled Substances Act (CSA), which means the legal marijuana industry is subject to some of the most stringent business regulations. In theory, these anti-money laundering laws are designed to improve the manufacturing, importation and exportation, distribution, and dispensing of controlled substances, but they can be extremely costly and cumbersome to navigate for retailers. As cannabis becomes an increasingly legitimate industry, it still remains hindered by a complex framework of laws that discourage banks from working with dispensaries. 

Banks are subjected to tedious paperwork with dispensaries

Due to the Bank Secrecy Act (BSA), financial institutions must keep detailed records when it comes to managing a dispensarys’ accounts. Banks have reporting requirements, meaning they must file a Suspicious Activity Report (SARs) to the Financial Crimes Enforcement Network (FinCEN) when there is any sign of money laundering, fraud or funds from illegal activities. Unfortunately, the CSA has a very vague definition of what constitutes illegal activity. As a result, every deposit and withdrawal a dispensary makes will likely be scrutinized by the bank or FinCEN. 

In 2014, the Financial Crimes Enforcement Network provided guidance to financial institutions for filing suspicious activity reports for cannabis payments. Banks are used to filing SARs for any account that they suspect is engaged in suspicious activity, but when it comes to filing SARs for cannabis companies, the process is much more demanding. And if a bank fails to report suspicious cannabis banking, they are subjected to harsh fines. Essentially, financial institutions that provide banking services to cannabis businesses are expected to be the primary watchdog and meticulously document all cash flow to avoid money laundering. These enhanced risks and due diligence requirements make most mainstream banks hesitant or unwilling to even engage with the cannabis industry.

Cash payments make record-keeping difficult 

You might have noticed that dispensaries can’t accept credit cards and very few accept debit cards. Major card companies are still unwilling to process cannabis transactions due to federal law. And when a dispensary accepts debit cards they are using a method called “cashless ATM” payments. However, the largest payment networks, such as Visa, have started to object to these cashless ATM transactions because these charges “mask” the name of the dispensary to prevent banks from realizing they are processing cannabis payments. In addition, PIN Debit providers and acquirers continue to violate card issuer policy. These practices are in clear violation of financial institutions’ terms and conditions, and disciplinary measures may soon be taken against cannabis retailers that accept debit cards. 

As a result, most dispensaries can only accept cash. Any business that has large amounts of cash on the premises is at high risk for theft. To stay secure, dispensaries want to deposit their funds into a bank account as often as possible. However, each deposit is a major compliance burden for the bank. Unlike other business deposits, cannabis banking requires extra reconciliation and labor from financial institutions. In mainstream retail markets, credit and debit bank statements provide a clear record of money flow. Cash is much less organized. 

Consequences for both dispensaries and banks

Dispensaries suspected of violating anti-money laundering laws –even by accident, are subject to federal and state prosecution. Every large deposit sets off alarms at the bank for the possibility of money laundering. Also, some dispensaries try to avoid the burdensome rules by depositing funds under an alternative business account. Consequently, financial institutions are extremely diligent about reporting potentially suspicious activity, in a way that has become excessive. 

So, while the cannabis industry is growing and bringing in more revenue to local economies, financial institutions are still bound by severe federal laws that haven’t changed to support this quickly evolving business. For example in 2019, five years after legalizing the sale of marijuana, Colorado surpassed $1 billion in total state revenue from the industry. Illinois legalized marijuana in 2020, and the state brought in over $100 million in tax revenue in the first ten months. Yet, banks are not incentivized to take on the responsibility of aiding dispensaries in their venture. 

What helps both dispensaries and banks? ACH Payments

ACH payments, or bank-to-bank transfers, are not only fully compliant with federal laws but are also backed by secure financial institutions. Aeropy partners with Safe Harbor, the leading compliance-based banking program for cannabis businesses and an affiliate of Partner Colorado Credit Union. Through Aeropay, the involved customer due diligence process has been done for you – streamlining the business and bank relationship to ensure optimal day-to-day retail operations.

ACH payments also provide a sense of security in the cannabis industry since Aeropay takes on the task of monitoring dispensaries to prevent fraud and money laundering. The technology companies that enable access to ACH have superior chargeback mitigation systems compared to debit/credit card providers. Dispensaries and banks have access to a much clearer report of incoming and outgoing funds which provides liquidity for their business operations. Aeropay provides peace of mind for both the dispensary and the bank by taking cash out of the equation and ensuring compliant and reliable cannabis transactions.


Adam Glogovsky

Director of Compliance & Operations
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