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A common turn of phrase in the cannabis industry uses the term ” seed to sale” to describe the entirety of the supply chain, from the breeders that develop the seeds and their genetics, to the dispensaries that sell cannabis products to consumers in a retail environment. Naturally, like much else in our modern business environment, this process is closely tracked with seed to sale software. While businesses use this to demonstrate regulatory compliance to state agencies and streamline their own business, the programs and the data they capture are crucial to cannabis banking regulatory compliance.

What is seed to sale tracking software?

Seed to sale tracking software is a type of inventory management software that is used in the legal cannabis industry to keep tabs on the whole supply chain, from purchases of raw materials like cannabis seeds to the sale of finished products like cannabis flower. 

Seed to sale tracking software helps plant-touching businesses like dispensaries or cultivation facilities monitor their expenses and revenues in one place, tying all the numbers to specific materials and products. This information is critical in helping cannabis businesses streamline their operations, inform purchasing decisions, and monitor spending. Finding the “sweet spot” means maximizing the business’s profitability, so these systems are particularly important for cannabis businesses.

More importantly, though, seed to sale tracking is a reporting requirement mandated by most, if not all, states where cannabis sales are legal. Regulators require businesses to provide seed to sale tracking reports so they can monitor their activity and ensure their operations fall within the scope of legal cannabis operations as defined under state law. These requirements cover every seed, every plant, and every product that flows in and out of a cannabis business. Failure to track this granular level of detail could result in serious consequences, including losing state-level licensure and the possibility of federal enforcement actions. 

Even if a cannabis business doesn’t plan on leveraging seed to sale tracking data for business purposes (and they should), they typically still must have the software for compliance purposes.

Why does seed to sale tracking matter to cannabis banking?

Bank examiners that supervise the banking of the cannabis industry are primarily concerned with anti-money laundering (AML) monitoring. This means banks working with cannabis businesses are required (to the best of their ability) to confirm that all funds deposited into the bank were earned within the scope of the business owner’s THC license from the state.

Seed to sale tracking data is immensely helpful to banks in this regard, providing bankers with information about a business’s precise inventory size over time, as well as their revenues. If these data do not match up, it could be a red flag that illegitimate funds are being co-mingled with legal earnings. If the data does match up, the bank can point to this information as evidence that their clients are legally operating based on the requirements of the license they hold.

When monitoring a cannabis client, banks are likely to refer to the seed to sale tracking data frequently. This means it is generally a requirement upon opening an account. The bank will likely integrate with the software platform to continue monitoring business activity for the life of the account as well.

What other data do banks need to obtain from cannabis businesses?

Seed to sale tracking software is not the only data a bank relies on to make an AML determination, of course. Banks will also want to see data from a cannabis business’s point of sale (POS) software. 

POS systems are the software associated with ringing a customer up and, when available, payment processing via credit card and debit card (although merchant processing is limited in the legal cannabis industry). POS systems include all the sales data for a business, so bankers can compare this data with the seed to sale tracking data to determine if the sales data lines up. Again, if it doesn’t, that’s a red flag. If it does, the bank has more evidence that the business is legitimate.

Additionally, a bank will consider the background histories of the business’s owners. If any of the business owners have a criminal background or were previously accused of money laundering, the bank will be less willing to work with a cannabis business. If their records are clean, however, a bank can rest assured that along with the inventory and sales data, a cannabis business is probably on the up and up.

With all these tracking tools available, why are so few banks willing to work with your cannabis business?

Of course, providing your bank with the data from your seed to sale tracking software presupposes that you already partner with a cannabis-friendly bank. Unfortunately, for many state-compliant legal cannabis businesses, this isn’t the case.

Cannabis banking has been historically challenging to secure and keep for legal cannabis businesses, especially plant-touching entities like dispensaries and cultivation facilities. Largely, this has been attributed to the ongoing federal prohibition on cannabis. 

Bankers often claim that they’d like to bank the industry, but cannabis’s status as a Schedule I drug under the federal Controlled Substances Act (CSA) prevents them. A common myth is that banks could lose their FDIC status if they work with federally illegal cannabis businesses, even when they abide by state law.

However, this prevailing wisdom is not reality. The federal Financial Crimes Enforcement Network (FinCEN) released specific guidance, which has been endorsed by the major bank examiners throughout the country, on how banks should work with cannabis businesses and when they should file Suspicious Activity Reports (SARs) to regulators. 

Additionally, the FDIC maintains a 400-page standard bank examination manual called the Federal Financial Institutions Examination Council (FFIEC) Bank Secrecy Act/Anti-Money Laundering (BSA/AML) Examination Manual. While the manual does not specifically address cannabis businesses – instead, it applies to all industries and high-risk businesses – the FDIC has explicitly referred to it as the standard by which cannabis-friendly banks should operate, supplemented by FinCEN’s 2014 MRB guidance. The other leading federal deposit insurers that examine member banks — the Office of the Comptroller of the Currency (OCC) and the National Credit Union Association – also use this approach. You can read more about regulatory compliance, including original reference documents, on the Fincann website.

So, while cannabis is indeed federally illegal, the federal government itself maintains regulations on how to bank state-legal cannabis businesses in a compliant way. No bank or banker has ever suffered the draconian consequences often cited as a reason to avoid banking cannabis. None have lost their FDIC status, and none have gone to jail. 

How to find cannabis-friendly banking

Regardless, relatively few banks work with the cannabis industry today. Although things are better than they were even a few years ago, just under 190 banks are currently working with the cannabis industry. Of those, only about 70 are willing to work with THC licensees. While cannabis banking is more accessible today, it can still be hard to find. You can keep up to date with the latest counts on Fincann’s official cannabis industry-friendly bank counter.

This has led to a counter-productive culture of fear within the cannabis industry, in which many entrepreneurs simply lie to the bank and open an account under an innocuous LLC or DBA. Unfortunately, this comes with significant drawbacks. 

When you lie to your bank, you lose out on the opportunity to market yourself to other cannabis businesses – if your bank saw your marketing, they’d terminate your account. Additionally, when you’re lying to the bank, you cannot rely on them as partners for other vital financial services like market research, cash flow management, lending, and more. And, of course, eventually the banks catch on. Usually, this results with a swift and unceremonious termination of your bank account.

If you’re in need of banking and are tired of hiding what it is your cannabis business does, then you better call Fincann. As a veteran in the legal cannabis industry, Fincann has spent years building a network of financial institutions that are willing to work with all sectors of the legal cannabis industry. Today, transparent, compliant banking is available in all 50 states for any cannabis business. If you want to stop lying to your bank and want to start realizing the full potential of your cannabis business, call Fincann today.