It appears as though Canadian banks missed the memo on cannabis legalization in 2018. Numerous cannabis-based businesses have expressed difficulty applying for and maintaining bank accounts despite having the proper credentials.
A poll on Twitter spurred numerous DMs from retail stores, license holders, and ancillary businesses (that don’t actually handle the plant itself) sharing stories of above average fees, lengthy application processes, and an increasing industry reliance on credit unions.
May I have an account please?
The first barrier businesses face is simply getting through the metaphorical front door.
“Ideally we would be able to be with a big bank with easy access, multiple locations, and national branches,” says Jeremy Jacob, CEO at Village Bloomery a cannabis retail business in British Columbia. This is how Jacob describes his wishlist for an ideal banking situation – a seemingly reasonable criteria.
As the Village Bloomery begins to expand – especially out of province – their current one branch credit union simply won’t be able to handle their plans for growth. Jacob shares that he has spent significant time and resources attempting to find a larger bank to handle their cannabis accounts.
Jacob experience is not a unique one for those operating in, or adjacent to, the legal cannabis industry in Canada.
“We’ve been to two banks and one credit union so far. We’re on our second credit union now,” shares Tabitha Fritz, an entrepreneur and consultant in the cannabis space. Fritz began her hunt for a bank in November and eventually secured an account for her consulting business mid-January.
“For my credit union application, I have to submit a business plan. I have to submit my cash flow statements. I have to submit financial projections. It’s like I’m finding investors again. Do you know what I mean? The onus is on me to prove that I’m running a legitimate business,” says Fritz. “It’s prohibitive.”
Fritz also operates a non-cannabis based consulting business for which she had no issue opening a corporate bank account. Fritz shared that when she opened a corporate account for her other business she simply walked into a bank of her choice, filled out a couple of forms, and left with an open corporate account within the hour.
This kind of vetting is excessive and prohibitive according to both Fritz and Jacob. “We’ve been vetted by the province, who have access to more thorough resources than most banks. So why can’t big banks accept the government’s due diligence and grant us a bank account?” questions Jacob.
He explains that cannabis has a higher risk associated with it so banks are hesitant to work with retailers and producers who handle the plant. Leading up to legalization, Jacob had hoped that cannabis retailers would share the same level of risk as alcohol. Instead he feels the banking industry regulates cannabis more like million dollar casino operations.
“As a cannabis account, and with the risk batch that has been assigned to our industry, banks have to do a really high level of vetting on every transaction,” says Jacob. “So not just your account as a whole, but every single thing that happens within it.”
The rise of the credit union
Big banks appear to have the largest barriers and highest price tags for working with cannabis businesses. Jacob and Fritz both expressed running into issues with BMO and RBC while trying to open corporate bank accounts. According to the sources, BMO charges a non-refundable $7,500 deposit with no guarantee of success and RBC will only allow publicly-traded companies to apply. Both BMO and RBC were contacted for comment but declined to discuss the application process or related fees for cannabis accounts.
Banking with credit unions comes with a hefty price tag compared to non-cannabis accounts – likely because of the additional vetting required. For example, at Jacob’s current credit union the monthly fees are $500/month whereas a non-cannabis corporate account is only $50. According to Jacob, the only banks that will work with cannabis accounts in British Columbia are credit unions. This can be challenging not just for expansion but also for daily operation.
Now there is nothing wrong with credit unions, in fact they have been a considerable ally to small cannabis businesses. However the growing dependence on credits unions is not the way to build an accessible and sustainable industry. Jacob and Fritz theorized that credit unions may be more accepting of cannabis clients because they operate nationally, instead of internationally (where cannabis laws vary).
“We’ve been with a very tiny credit union that has one location. Now we have negotiated something with another credit union, again, a small organization slightly bigger than the one we have,” says Jacob. “But it doesn’t give us access to easy-to-reach local locations. When a manager needs to do a change run they have to take a cab to the other side of the island between the hours of 9 to 5. It’s not realistic.”
Barriers to growth and small business
Banking is a fundamental part of operating a business – a part often denied to cannabis operations. While large corporations and publicly traded companies have the time, finances, and staff-power to navigate the barriers – small businesses simply do not.
“If you are a large business, and you’ve gone public etc, you can now utilize banking services. It gives access to the industry, to the well established, to the privileged,” says Jacob. He shares that legalization should have been a game changer but instead it just further exacerbated the struggles of small business.
“It’s really disheartening to see the banking establishment fall in line behind policies that were set up to further exacerbate that separation of wealth. It just really makes you wonder who’s going to start paying attention to equity and fairness in business?”
It took months to secure a bank account for her consulting business, in the interim Fritz had to pay vendors out of her personal account. The extra resources small businesses need to expend in order to secure a bank account adds considerable barriers to starting out.
“It makes operating a small business so much more difficult. I don’t know when I’m going to be able to do normal banking things like paying bills. Now I’m buried under a 200 page document to apply for a corporate account. I don’t have time to do this,” Fritz says about the added stress and time commitment.
“It just seems to me that if you’re running a business that is legitimate, that is within the legalization, that’s within regulations, that I should not have to go above and beyond what everybody else in this country does to access a bank account. This is not a way to make an equitable industry. There’s a problem here.”