March 8, 2017

California’s legalization has opened the floodgates of cannabis cash with nowhere for it to go. In the cannabis industry, where federal law makes banking almost impossible for cannabis businesses its interesting to note that in states where recreational markets thrive, i.e. Colorado, there is greater access to banking. Hello California banking, Prop 64 says it’s ok to come out now!

How Recreational Markets Create Banking Options

As we have seen in states like Colorado, to comply with federal standards, recreational markets require vigorous compliance and enforcement measures to avoid being targeted.  As a result, banks (usually credit unions or community banks) can feel confident that their clients are operating legally. Translation – compliant banking is more prevalent in recreational markets than in those limited to medical cannabis.

$10,000, Deposits, and Banking

So you operate a cannabis business and need to deposit cash? Here’s what you need to know. Anytime a deposit of $10,000.00 or more is made, federal law requires banks to report the transaction to the IRS or National Security Agencies. Local banks and credit unions will offer their services, but the give and take of it means a new level of reporting and transparency for cannabis businesses. Banks are fully visible to federal government and thus demand transparency from their banking clients. Banks file hundreds of thousands of reports for deposits over 10k. Ultimately, these reports end up in a pile with millions of other reports that may or may not get reviewed and investigated. Not only do banks report this, but the individuals receiving more than 10k are also required to do reporting of their own. Enter Form 8300, stage right.

Each Transaction over $10,000.00 Requires a “Form 8300”

Depositing $10k? What about simply receiving more than $10k in a cash transaction? Transactions that, accumulatively, are more than 10k within a period of a year require that a Form 8300 is filed to report the cash transactions. Be careful, this isn’t a one time filing. For any moneys that you get from the same person that continue to build on that $10K, an amended Form 8300 should be filed. Forget being a cannabis business for a second, ANYONE receiving more than $10k – landlords, suppliers, attorneys, vendors – within a year from the same individual needs to file an 8300 or face penalties of up to $1,500,000. OOPS!

Strategic Deposits under $10,000 and the Penalties For “Structuring”

Trying to avoid reporting by making multiple smaller deposits just under the $10,000 reporting threshold is a crime referred to as structuring. Structuring multiple deposits under $10k has little chance to avoid detection and can land you in hot water. Here is why…The Bank Secretary Act (BSA) requires banks to report this activity and banks have detection and compliance systems in place to catch it. This reporting system is very similar to that of the reporting system for deposits made over $10k EXCEPT, every single one of these reports is read and potentially investigated by the IRS.

As banks take on the risk to serve the cannabis industry, they trust that cannabis businesses will operate in line with banking requirements and regulations. As of mid 2016, only 3% of the 7,600 banks in the U.S. were offering some form of financial services to businesses in the marijuana industry. Little by little, as legalization sweeps the nation, state and local banks will slowly trickle behind.

Disclaimer: This article has been prepared and published for informational purposes only and is not offered, nor should be construed, as legal advice.