Q&A: Alternative banking for cannabis products?

This transcript was generated from the episode audio and may contain minor errors.

[Music]

If you do business in the cannabis industry, where do you keep your money? Even if you don't do business in the cannabis industry, this is really interesting because it is a big problem, at least in the US. Other countries like Canada that have wisely taken a federal approach to legalization have fewer problems, although it's still not easy for legally approved sellers to conduct their banking. Now here in the US, most US states that have legalized medical and or recreational marijuana, they have an even bigger problem because they often have to operate in an all cash economy. And why is that a problem?

Well, I don't know. Haven't you seen a Netflix show about money laundering or drug dealers? It's tough and this is legal, just to be clear. We're talking about something legal. They have very high taxes and need to take tens of thousands of dollars in cash, often in these large Tupperware jars or duffel bags to the state office to pay those taxes.

They're at risk of being robbed because if you're a robber, this is a pretty lucrative target for you. You know, they're going to have a lot of cash, not to mention the fact that most of us don't want to keep all of our money in cash under our mattress. So lots of issues there. And, you know, these people are trying to operate a legal business and pay those taxes and everything, but it's really difficult without a bank account. So that's what today's caller is wondering about.

And they're actually not even selling cannabis itself, but let's let them explain. I believe this is Frank. So quick message from our sponsor, then Frank, and then my answer. [Music]

Hi, Chris, this is Frank. And I just recently found your show through Spotify.

I'm getting involved in the cannabis industry, which was recently legalized in my area. The only problem is banking still isn't legalized, or at least the banks are hesitant to take money from anyone who works in this industry. I'm not even selling recreational marijuana myself, but even by association, it seems most local banks are reluctant. This seems ridiculous because it's legal now, and I shouldn't have to beg the bank to take my business, but that's sure what it feels like is required. Do you see this changing anytime soon?

And what should people like me do in the meantime? Thanks. - Well, Frank, here's the thing. It is kind of ridiculous, as you say, that this is a legal product in many states and jurisdictions all across Canada now. I think it's actually the majority of the business and I think it's actually the majority of US states now, but yet you can't actually do basic banking, which creates all these kinds of problems, some of which I mentioned in the introduction.

The good news is it's slowly getting better. So the US Congress recently passed the Safe Banking Act, which allows state banks to be protected, protected from the federal government, ironically, in providing services to businesses in the legal cannabis market. And at the time of this recording, this act still needs to be passed in the Senate and then signed by President Biden, but there is general bipartisan support for it. So presumably this bill or something similar will happen soon. Also, as I was doing some research, I assumed that Canada would be better since the legalization effort there was federally driven.

And it is better, but it's still problematic. I found a lot of articles talking about how banks are frustrating there as well. And even if you do get accepted as a business client, you often pay higher fees. So the other thing that's gonna improve all of this, not just in the US and Canada, but anywhere for all sorts of legal markets, is decentralized finance and cryptocurrency. Because if traditional banking institutions can't provide solutions for legal businesses, somebody else will step in.

So that's why I've been learning a lot about DeFi. I think it's really interesting. So watch this space, it will get better. Frank, I hope a year from now, you're not gonna have the same problem, at least not to this degree. Listeners, if you have a question or if you've got feedback, comments, anything, come to sidehustleschool.com/questions.

We will continue to feature them throughout the year, along with the case studies, the Throwback Thursday segments, Failure Friday, any other fun stuff we come up with, all designed to help you create a new source of income, and preferably in a legal business. Okay, more to come tomorrow. My name is Chris Guillebeau. This is "Side Hustle School." [Music]

From the Onward Project.