If cannabis flower is federally illegal because it contains Tetrahydrocannabinol (THC), are cannabis seeds legal because they don’t? It’s a fair question that many people have asked and, while the answer is “no” federally and “it depends” by state, there is an active legal cannabis seed trade occurring every day in the U.S. – and it is rapidly growing. While the legal questions evolve and new legislation surfaces in state capitols and Washington D.C., there is cash tied to the sale of cannabis seeds in need of banking.
Cannabis seeds are illegal to sell across state lines due to the ongoing federal prohibition against cannabis and cannabis products. However, depending on state law, consumers may be able to purchase cannabis seeds legally from a breeder, dispensary, or other cannabis business – even if they don’t have a license to sell cannabis products that contain THC.
Cannabis seeds find themselves in a legal grey area because they don’t contain any THC – when a cannabis product contains 0.3% THC content or less, it is considered legal since the signing of the 2018 Farm Bill. However, they remain federally illegal to buy and sell. In states where cannabis is legal, cannabis seeds could sometimes be bought and sold within state borders by licensed businesses only, depending on state law. State laws governing the sale of cannabis seeds can vary from state to state.
For THC licensees who also sell cannabis seeds, banking is available as it would be for other activities that fall under the scope of that license. In other words, a dispensary would have little trouble adding cannabis seeds to their inventory if they already worked with a cannabis-friendly bank.
However, unlike THC licensees, there is not a clear federal regulatory framework on how to bank money derived from state-compliant cannabis seeds sales from non-THC licensed operators. As a result, this sector of the legal cannabis industry comes with a great deal of uncertainty and risk, every banker’s least favorite combination.
So, for example, a garden shop stocks all types of seeds, including cannabis seeds, which become a substantial portion of the shop’s business. Unlike a licensed dispensary, this garden shop does not deal in other cannabis products, and yet cannabis seeds remain a significant percentage of overall revenue. The regulations that bank examiners use for THC licensees doesn’t necessarily apply to the garden shop and so many bankers remain uncertain how to approach this type of situation (and therefore tend to avoid it).
In this way, cannabis seeds are more like CBD products or Delta-8-THC: largely unregulated from a banking perspective.
The difference between CBD banking and cannabis seeds banking, though, is that while the U.S. cannabis seeds market is expected to eclipse $1.5 billion in total value by 2027, the American CBD industry already drives more than that in sales each year. More niche sectors of the industry like the cannabis seed trade and Delta-8 THC distillates face an even steeper uphill battle in securing compliant banking and merchant processing services than CBD businesses.
That’s not to say banking isn’t available for these sectors. However, bankers generally tend to be less informed about cannabis seeds than THC licensees or even CBD businesses. At any time, a bank could take a closer look at sectors like cannabis seeds or Delta-8-THC and decide the uncertainty is too great and the business opportunity too small (relative to broader markets like CBD) to take the risk – at any time, a bank could choose to terminate these accounts and suspend merchant processing services.
Cannabis seeds businesses might be legal in your state but remain federally illegal – and without a THC license, it’s not exactly clear to bankers how to compliantly manage your account. However, unlike THC licensees, federal bank examiners have produced no real guidance on how to bank profits earned through the purchase and sale of cannabis seeds. While THC licensees handle a federally illegal product, bankers have guidance, and therefore more certainty, on how to bank them in a compliant manner. There is no such assurance when it comes to cannabis seeds businesses.
This has led many cannabis seeds businesses to mischaracterize their operations to their bank, posing as an agricultural company under some obscure name and withholding information about cannabis-related operations. Not only does this carry significant business consequences, it appears that law enforcement is cracking down on fraud in cannabis banking and payment processing. This approach is not only obsolete but puts your business at a competitive disadvantage. Yesterday was the best time to transition to transparent, compliant cannabis banking, but right now is the second-best time.
Cannabis entrepreneurs know few things are certain and those that are won’t be for long. The same is true for cannabis banking, but you can take certain steps to improve your chances of finding, retaining, and maintaining a stable relationship with your bank.
The first and most important step is to identify a cannabis-friendly bank and approach them in full transparency. That can be easier said than done. Many cannabis-friendly banks don’t openly advertise the fact that they work closely with the industry. Even if they embrace the industry and the business opportunities that come along with it, many remain cautious about the optics of being associated with a federally illegal product.
That’s where banking networks like Fincann come in. We’ve been doing the hard work in the trenches for years, forging relationships with financial institutions that are ready and willing to work with the legal cannabis industry, including cannabis seeds businesses. As of April 2021, Fincann’s Cannabis Banking Financial Network™ offers compliant cannabis banking and merchant processing services for every sector of the industry in all 50 states.
Once you and your new bank have been introduced, including a full review of business operations and financials, you’ll know you have a banking partner that understands and supports your business. And, if you’re in need of merchant processing services, there are several legitimate, compliant options available to all sectors of the cannabis industry: merchant processing accounts, “PayPal-style” e-wallets, closed-loop and loyalty cards, high-profit ATMs, and ACH-based apps and transfers.
Merchant processing accounts support in-person debit transactions, allowing customers to make cannabis purchases using their checking account and PIN number. ACH transfers support an online payment functionality for e-commerce stores. Customers simply input their routing and account number and confirm their payment to checkout online. Both methods are 100% legally compliant and transparent with the facilitating bank.
There is no longer any need for a business in any state or sector of the legal cannabis industry to lie to their bank or use illegal payment processing workarounds. With banking networks like Fincann and payment processing solutions like merchant processing accounts and online ACH transfers, cannabis businesses have effective, legal, and straightforward options. The future of the cannabis industry is legal and transparent; don’t fall behind, call Fincann and transition to better cannabis banking today.