Unique Banking Challenges MSOs Encounter

BEND, OR, UNITED STATES - Mar 08, 2018: Dr Jolly's Cannabis Dispensary in Bend, Oregon, USA. Selling, THC and CBD edibles, flower, wax, concentrates, joints, beverages.

A sprawling adult-use cannabis industry is taking root from coast to coast. While the rules and regulations vary from state to state, that has not limited some dispensaries from opening locations in several regions. These multi state operators (MSOs) need to take the specific requirements of each state into account in every aspect of their business, from product types offered to how they bank. What are some of the issues that impact an MSO’s ability to access banking?

What are multi-state operators?

A multi-state operator (MSO) is a plant-touching cannabis business with a presence in two or more states. While under the same holding company, each location has its own licensing and regulatory requirements as dictated by the state or municipality in which it’s located. Each location needs its own supply chain for cannabis products within that state, for example, among other considerations. 

Why MSOs face unique banking challenges

While similarly sized companies in other industries can benefit from economies of scale and concrete guidelines set by local, state, and federal government agencies, MSOs in the cannabis industry must navigate a complex web to get access to financial services. With roughly 200 truly cannabis-friendly banks in the country, obtaining those services can already be difficult without additional support.

When it comes to MSOs, a big part of the challenge stems from rules that many cannabis-friendly financial institutions already have in place. For instance, many of the banks that cater to cannabis businesses tend to limit access to their services to companies that operate in a specific state or region. While that may work for your average local cultivator or dispensary, MSOs are comprised of multiple locations across multiple states and often cannot meet the financial institution’s own rules. It may also be the case that one location is eligible for banking services at a certain institution, but other locations in other regions or states may not be.

Another pain point for MSOs is the fact that many banks would see their business structure as too complicated, and therefore too difficult, to ensure proper compliance as laid out by FinCEN and other agencies. One area why this would be a concern is a financial institution’s desire to conduct its due diligence on every account holder they take on. If you take the fact that a cannabis business comes with its own set of rules and then include the multiplying factor of that business operating in multiple states under different sets of rules, the process of vetting the business becomes even more cumbersome than it already is for a single dispensary or a dispensary with a presence in only one state.

Do MSOs need multiple bank accounts?

Since cannabis-based MSOs operate in multiple states, they must comply with varying degrees of regulation and oversight. That extra scrutiny is especially powerful when it comes to banking. As such, they will absolutely need more than one bank account.

MSOs should obtain separate bank accounts for each state in which they operate. Doing so provides some piece of mind that their banking needs are met while remaining compliant with state law. Another method to handle multiple bank accounts as an MSO is to get a separate account for each licensed operation, even if they’re all under the same corporation.

While all of this is certainly doable for an MSO, the best tactic is to find a bank that operates a cannabis compliant program across multiple states. Since the program is legally compliant when it comes to cannabis companies, it can allow an MSO to start a relationship with a single financial institution while maintaining separate accounts for at least each state, if not for each licensee.

Do public companies face banking challenges?

In addition to MSOs, public companies in the cannabis industry often deal with similar issues when it comes to obtaining financial services. While it’s true that not all public companies are MSOs and vice versa, there are a number of cannabis businesses listed publicly on a stock exchange that have some connection to various MSOs as subsidiaries. Though their position in the stock market is far from the standing that Apple and Tesla enjoy, cannabis companies with operations in multiple states have become relatively bullish publicly traded stocks. 

Investment issues for public companies and MSOs

It’s not just the numerous states and locales that tend to give financial institutions headaches when it comes to dealing with public companies and MSOs. Like many large businesses, many MSOs rely on securing investment capital to get started and continue operations. Because investors might take stakes in individual subsidiaries within the MSO across the country, extra scrutiny on where the money’s coming from may be required. This adds a tremendous amount of work on the bank’s end, and not every bank wishes to undertake that kind of responsibility or labor.

Furthermore, public companies and MSOs can also be a target for additional federal scrutiny, thanks to the potential for more punitive measures against cannabis businesses. Still, banks need to determine the invested capital and beneficial owners, especially since public companies tend to come with stronger federal compliance requirements and tend to get the attention of the U.S. Securities and Exchange Commission (SEC). That kind of attention from the federal government is something that banks, especially ones new to compliant cannabis banking, usually want to avoid.

How Fincann helps MSOs open bank accounts

The unique needs of MSOs can make it even more challenging for these companies to secure stable banking. They cannot simply walk into a bank and expect to walk out with financial solutions in hand.

Though MSOs and public companies can have some difficulty finding and opening bank accounts, we at Fincann are specifically poised to help cannabis businesses with this issue. If you’re running a public company, multi-state operator, or tend to conduct cross-border transactions, we can match you with a one or more financial institutions in our network that are willing and able to conduct the work necessary to support an MSO’s complicated needs. This cuts out the weeks and months of time spent on applications, just to hear that your bank of choice does not want your business.

By closely working with the country’s roughly 200 cannabis-friendly banks, our banking network strives to sync banking options across state lines for MSOs when possible. The more complex the MSO, the more willing we are to create a custom solution through careful consultation and planning. Our network can provide your business with a direct line to financial institutions that have the knowledge and experience dealing with the cannabis industry. There are banks willing to work with all sectors of the cannabis industry in all 50 states, enough to provide compliant, stable, and transparent services to every business in need. 
By contacting us to see if you qualify, you’ll be taking the first steps toward obtaining full-service commercial banking services like checking accounts, payroll services, commercial lending, and electronic payment solutions.