Cannabis businesses hoping that a federal Schedule III listing might solve their payment-processing problems – and general banking issues, for that matter – had better not hold their breath.
That’s because an organization representing credit card payment networks like Visa and Mastercard, which prohibit the use of their cards for cannabis-related transactions, said those companies “would not change their policies unless cannabis is legalized at the federal level,” according to a new federal report.
The U.S. Government Accountability Office (GAO) released the report, “Banking Services: Cannabis Businesses Face Access Challenges,” on Sept. 8, examining three key topics:
- the guidance and oversight federal agencies provide to financial institutions on serving state-sanctioned cannabis-related businesses (CRBs)
- factors that affect financial institutions’ decisions about serving CRBs
- challenges CRBs and their employees face in accessing financial services
The GAO is an independent, nonpartisan agency that works for Congress and investigates how the federal government spends taxpayer dollars.
GAO Director Courtney LaFountain explained in a video accompanying the report that the challenge for cannabis business owners is often multifaceted, starting with finding a financial institution that’s actually willing to provide its services and the high cost of those services.
As part of the report, the GAO conducted eight focus groups with cannabis-related business owners and managers representing companies of various sizes and types.
“Payment processing was actually something that the cannabis-related businesses talked about a lot,” LaFountain said. “Most of the major payment processors won’t process transactions involving cannabis products. What this means is they’re handling large volumes of cash, and that creates its own sort of logistical and safety challenges for those businesses.”
Not only are cash-heavy business operations often targets of armed robberies and other crimes, but cannabis companies also face additional business costs, including secure cash transports, deposit fees and ATM-use fees, according to the report.
To stave off these risks and financial burdens, many licensed dispensaries offer customers “cashless ATM” transactions, allowing budtenders, for example, to round up a $55 sale to $60 and give the customer $5 back in cash. This masquerades the transaction as an ATM withdrawal rather than a cannabis purchase by mimicking standalone ATMs through a miscoded cash disbursement.
However, Mastercard and Visa issued warnings in recent years that these point-of-sale cashless ATM transactions violate their policies, putting card issuers such as banks and credit unions at risk.
“In accordance with our policies, we instructed the financial institutions that offer payment services to cannabis merchants and connect them to Mastercard to terminate the activity,” a Mastercard spokesperson said in 2023.
The GAO report highlighted myriad other obstacles and headwinds cannabis-related businesses face in the nation’s financial structure, from bank accounts closing with little notice to difficulty obtaining conventional loans and securing payroll services so employees aren’t paid in cash.
According to the report, participants in seven of eight focus groups described paying monthly or annual bank account fees, with two focus group participants stating they paid $100,000 or more per year. Participants in seven focus groups also cited loan interest rates exceeding 15%, roughly double the rate for traditional small businesses in the U.S.
“There’s issues with taking out loans,” LaFountain said. “Financial institutions were concerned that any collateral they put up could be seized by the government. We also heard that employees of cannabis-related businesses might have trouble qualifying for a mortgage because their lender might just not see their source of income as reliable enough.”
The GAO report also included nine focus groups involving 74 financial institutions, represented by either a Bank Secrecy Act (BSA) officer or cannabis banking program manager. GAO researchers also interviewed financial and cannabis industry associations and other interest groups.
One major takeaway from the report is that most financial institutions remain reluctant to service cannabis-related businesses because of legal risks, despite a decade-plus track record of federal banking regulators taking a neutral position – neither prohibiting nor encouraging the activity.
“Have there been any financial institutions who have been prosecuted for any of their interactions with cannabis-related businesses?” LaFountain was asked in the video.
“No, not that we’re aware of,” she said. “From the banking regulator’s perspective, as long as the financial institution is complying with those FinCEN requirements, they haven’t weighed in on cannabis-related businesses specifically.”
In 2024, the U.S. Treasury Department’s Financial Crimes Enforcement Network (FinCEN) estimated that roughly 1,000 banks and credit unions – or about 11% of the approximately 9,000 insured depository institutions in the U.S. – filed suspicious activity reports (SARs) for certain transactions involving cannabis related-businesses.
Those numbers come 10 years after FinCEN issued guidance in 2014 to clarify BSA expectations for financial institutions considering working with cannabis-related businesses, specifically allowing them to do so in a manner consistent with the broader goal of protecting the U.S. financial system.
“They need to have a robust risk-based due diligence process, and they need to continue to monitor that customer on an ongoing basis,” LaFountain said. “The other thing that financial institutions need to do is file what are called suspicious activity reports for every transaction involving a cannabis related business. And they need to file these reports even if there’s nothing else about the transaction that might raise a red flag. So that’s just an extra reporting requirement that the banks have because they’re working with a business in the cannabis industry.”
The report clarifies that SARs indicate how many institutions reported providing services to CRBs, but they do not identify how many institutions accept CRBs as ongoing customers. In other words, many of the 1,000 banks and credit unions that filed SARs in 2024 may only have intermittent relationships with CRBs or only serve ancillary businesses rather than plant-touching companies.
Regardless, the compliance costs and risks associated with serving a federally illegal industry continue to deter many financial institutions, LaFountain said.
“Some of the financial institutions we spoke with said that this was a consideration for whether they’re going to invest in this business line,” she said. “Other financial institutions felt that they could manage the cost, appropriately monitor their customers and still make money doing it.”
GAO researchers also asked financial institutions whether safe harbor legislation, such as the Secure and Fair Enforcement (SAFE) Banking Act, would provide them the appetite to begin serving, or expand their existing services of, cannabis-related businesses.
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“In our focus groups with financial institutions that do not serve CRBs, 20 of 25 participants we polled anticipated that a safe harbor law would likely affect the types of CRBs their institution would serve,” the report states. “Representatives from nine financial, cannabis and cannabis banking associations similarly said such a law would likely increase institutions’ willingness to serve CRBs by reducing legal and regulatory risk and could lead institutions that already serve CRBs to expand services, such as lending.”
While safe harbor legislation and/or a federal Schedule III classification could shift the landscape in favor of expanded access to financial services for cannabis-related businesses, these incremental reforms wouldn’t solve all industry-related issues that often lead to unpredictable and more expensive services, according to the report.
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LaFountain said the report will help members of Congress, taxpayers and federal agencies understand a few things.
“There’s a lot of considerations that financial institutions are thinking through to decide whether or not to work with cannabis-related businesses, and also what the situation looks like from the business perspective and where those businesses are facing the biggest hurdles in obtaining banking and other financial services,” she said.
