Cannabis businesses operate in a legal and financial grey area. They need to comply with all the regular rules and regulations around anti-money laundering and money transmitting laws, while also adhering to specific state requirements for cannabis-related businesses.
Many cannabis businesses work with third-party vendors to handle their payment processing and record-keeping. Business owners need to make sure that their partners are compliant with a whole host of financial laws and regulations to keep their businesses safe.
Many traditional financial institutions, such as banks and credit unions, are compliant by default, but cannabis businesses often interact with lesser-known vendors, where it may be necessary to verify these credentials.
Legal Requirements for Financial Partners
Anti-money Laundering (AML) Compliance
AML compliance is a set of rules and regulations that banks, payment processors, and other institutions must follow to remain legally able to transfer money. It requires organizations to verify their customers’ identities, monitor the source of transactions, and report on certain suspicious activity.
As the name suggests, AML regulations are designed to prevent money laundering and disrupt the financial means of criminal organizations such as drug cartels, human traffickers, and terrorist groups.
Suspicious Activity Report (SAR)
A SAR is a report that financial institutions file with the Financial Crimes Enforcement Network (FinCen) when they encounter suspicious activity such as fraud or money laundering. Financial institutions are required to file these reports if they encounter suspicious activity within the financial transactions they manage.
Know Your Customer (KYC)
This isn’t just good business advice, it’s a legal requirement for financial institutions. Similar to the braoder AML compliance, KYC regulations require that orgnaizations are able to verify information about their customers, including: name, date of birth, and address.
Money Transmitter Laws (MTL)
A set of regulations that require institutions that move or hold funds to register with the federal FinCen and acquire state-specific licences. These licences include a minimum net worth and AML compliance among other necessities.
As you can see, there are a lot of rules and regulations for financial institutions that aim to prevent money laundering, fraud, and financing of illegal activities. Having a payment processing parter that is aware of these requirements and builds them into the platforms they offer is absolutely crucial for cannabis businesses, who are often under greater scrutiny than other businesses in low-risk industries.
Cannabis Specific Regulations
In addition to the regular rules of processing financial transactions, cannabis businesses must adhere to state-specific laws about the managment of their businesses.
State Requirements
Each state that permits the sale and consumption of cannabis products has their own set of legal requirements. Many of these requirements include tracking the growth, cultivation, testing, and sale of cannabis products. These requirements often fall on the cannabis businesses themselves, rather than the financial institutions supporting them.
These often include:
- Inventory management using a state-wide seed-to-sale tracking system
- Records of the quantity of product in the businesses possession
- Growth phase of any plants
- Production and disposal of cannabis waste
- Tagging of plants and products
- Reporting of the sale, transfer, and distribution of cannabis products
- Licencing requirements and upkeep
There are many, many more state level requirements. Confer with your state’s laws for a comprehensive list.
The Cole Memo
This was a memorandum sent by the former US Assistant Atterney General, James Cole, from the Department of Justice outlining the federal governments role in cannabis legal enforcement. Because cannabis is federally illegal, but legal in some states, this document outlines what the governement will consider grounds for federal intervention of cannabis related businesses.
Some of these include:
- Selling or distributing cannabis products to minors
- Using revenue from cannabis sales to fund criminal enterprises
- Violence or the use of firearms in the cultivation or distribution of cannabis products
- Division of cannabis to states where it is not legal
State laws also prevent these activiities, amongst others, but these examples of illegal practices will provoke federal enforcement, not just the state that the business is operating in.
Finding Compliant Business Partners
With the sheer volume of federal and state regulations in the cannabis industry, it is crucial for cannabis business owners to find partners and vendors who comply with these regulations and stay up to date on changes in the industry.
Greencard
Green Card is a digital wallet that enables customers to pay for cannabis purchases using funds directly from their bank account. It is a secure, legally compliant solution for cannabis businesses that allows them to move away from cash-only transactions while staying fully compliant with federal and state laws.
- Fully transparent software
- Adheres to all federal and state regulations
- Interfaces with your existing systems
- Fast and easy fund transfers