As more states legalize cannabis, many employees in the cannabis industry are finding themselves facing an inability to access or maintain financial services. Despite cannabis businesses operating legally in their states, employees are often denied basic services like investing in stocks, securing loans, or even maintaining personal bank accounts.
The Federal-State Conflict
Classified as a Schedule I controlled substance under the Controlled Substances Act, cannabis remains illegal at the federal level in the United States This federal prohibition creates a complex web of challenges for workers employed in state-legal cannabis industries. Although dispensaries and other cannabis-related businesses may operate legally in states like California, Colorado, or Michigan, they are still technically engaging in activities prohibited by federal law.
This disconnect puts financial institutions in a difficult position. Many banks, investment firms, and other financial services are federally insured or regulated. The threat of violating federal laws, particularly those regarding money laundering, is enough to make most institutions wary of interacting with any part of the cannabis sector, even if it’s fully legal in the state.
Denied Investments
One major issue faced by cannabis workers is their ability to invest. For some, the process is smooth; for others, it’s a bureaucratic nightmare. Take, for instance, a Reddit user who shared their experience of opening an investment account with Fidelity, only to have it closed two days later because they work at a dispensary. Their income — derived from a paycheck paid by a dispensary — was enough to trigger account closure.
Like many other financial institutions, Fidelity has strict policies regarding customers connected to federally illegal industries. The company’s customer service team explained that the blanket ban applies to anyone involved in cannabis, regardless of whether they are directly involved with the cannabis stocks they invest in. These policies reflect a broader reluctance by banks and investment firms to service clients whose incomes may be linked to an industry that is still illegal federally.
Denied Loans
The financial struggles faced by cannabis workers go beyond investing — they also impact their ability to secure loans. A growing number of workers in the cannabis industry report being denied loans, credit cards, or even mortgages due to their employment. This can be a particularly crushing blow for those who have worked hard to establish a stable income in a growing sector but are still left without access to basic financial tools.
Several Reddit users shared their experiences, with one detailing how a coworker was denied a home loan because their income came from a dispensary. Another shared how they were unable to use their paycheck from a cannabis employer to secure a loan, as banks refused to recognize the legality of their income.
Similarly, employers working in the cannabis sector may find it difficult to secure business loans or open business accounts at financial institutions. Some financial institutions, including federal credit unions, explicitly stated that they are unable to provide services to businesses in the cannabis industry, even if the business is legal under state law.
How Financial Institutions Navigate Cannabis-Related Risks
So, why are financial institutions so reluctant to serve cannabis workers? The primary issue is the ongoing federal prohibition on cannabis. While some banks and credit unions have cautiously moved to work with cannabis-related businesses, the legal uncertainty surrounding federal law creates significant risks of penalties for these institutions.
1. Federal Regulations: Banks and financial services companies are subject to regulations from federal bodies like the Federal Reserve and the Federal Deposit Insurance Corporation (FDIC). These agencies maintain strict rules about the types of transactions banks can facilitate.
2. Anti-Money Laundering (AML) and Know Your Customer (KYC) Regulations: Financial institutions must comply with rigorous Anti-Money Laundering (AML) laws and Know Your Customer (KYC) requirements. These regulations are designed to prevent financial institutions from becoming inadvertently involved in illegal activities, including money laundering.
3. Lack of Clear Federal Guidance: There remains a lack of clear federal guidelines on how banks should handle cannabis-related transactions. This regulatory gray area keeps many financial institutions from taking on cannabis workers as clients.
The Consequences for Cannabis Workers
The financial exclusion faced by cannabis workers isn't just inconvenient; it can have real-life consequences. Without access to basic financial services like investing, saving, or obtaining loans, workers in the cannabis sector are left without the tools they need to plan for their future. This affects not only their ability to build wealth but also their ability to establish financial security in an industry that’s still fighting for legitimacy.
For many cannabis workers, this creates a catch-22: they’re often not willing or able to leave their jobs in the cannabis sector due to the opportunities it provides, but their connection to the industry hampers their financial growth. In an era where the cannabis industry is becoming a key part of the economy in many states, it’s clear that the lack of banking access for workers in the industry is a serious issue.
Dos and Don’ts for Seeking Banking and Investing Services
For those working in the cannabis industry, navigating the world of banking and investing can be tricky. Here’s a list of dos and don’ts when seeking financial services as a cannabis worker.
Dos:
1. Be Transparent About Your Income: If you’re applying for a loan, mortgage, or credit card, be upfront about your source of income. While some may deny services due to your employment in the cannabis sector, being forthright can help you avoid potential complications later.
2. Seek State-Legal Banks and Credit Unions: Look for local credit unions or smaller banks. Some state-chartered banks or credit unions are more willing to serve cannabis-employed applicants in states where cannabis is legal.
3. Use Non-Traditional Investment Platforms: While some major investment firms may hesitate to allow cannabis workers to open accounts, non-traditional investment platforms are more likely to offer services without the same restrictions, though the fees may be higher.
4. Focus on Tax-Documented Income: Many financial institutions will work with you if they can verify your income is taxed and legal. Having proof of tax payments and legitimate income can sometimes help mitigate concerns about the source of your funds.
5. Consult a Financial Advisor: It may be helpful to consult a financial advisor who specializes in working with clients in the cannabis industry. These professionals can guide you on how to best structure your finances.
Don’ts:
1. Don’t Hide or Misrepresent Your Job: Financial institutions may ask about your job or source of income during account opening or loan application processes, and if you misrepresent your situation, you could face penalties, including account closures or denied applications.
2. Don’t Rely on Major National Banks Without Research: Many major national banks, such as Chase, Wells Fargo, and Bank of America, have strict policies against working with cannabis-related businesses and individuals. Always research the policies of large institutions before opening an account.
3. Don’t Give Up on Alternative Routes: Don't immediately give up after facing rejection from one or two banks. Look into smaller, local banks, state-chartered credit unions, or even online financial platforms that may be more open to working with cannabis workers.
Seeking banking and investment services as a cannabis worker is undeniably more complicated due to the ongoing federal prohibition on cannabis. However, the right approach can help you overcome any obstacles and thrive in the cannabis industry.
Moving Forward: What Needs to Change?
The current situation highlights the need for federal reform. While many in the cannabis industry are pushing for legalization, reforming banking laws is a must. The SAFE Banking Act would provide protections for financial institutions that choose to work with cannabis businesses and their employees, allowing workers to access financial services without fear of legal repercussions.
