Nearly two decades after states began allowing medical cannabis, many licensed pharmacies still cannot accept credit or debit cards because payment processors do not accept them as customers.
They are also having trouble getting loans from traditional banks, where cannabis companies are considered high-risk clients.
Since the Controlled Substances Act was passed in 1970, federal regulators have combined cannabis with some of the the most illegal drugs in America, such as heroin and LSD.
This classification, known as Schedule I, is for drugs that the government determines have no known medical benefit and pose a high risk of addiction. It is a federal crime to manufacture, purchase, sell, or possess Schedule I controlled drugs without special authorization.
As long as cannabis remains classified as Schedule I, almost every dollar earned by the industry can be construed as the proceeds of a federal crime.
This legal status has kept the cannabis industry trapped in the US financial system, even as retail revenues have grown to about 30 billion dollars last year.
But that could change now that President Donald Trump ordered The Department of Justice should speed up the reclassification of cannabis.
Once it is completed, the cannabis will be classified under federal law as Schedule IIIand regulated pharmaceuticals such as anabolic steroids and Tylenol with codeine.
Main goal accelerated reclassification plan The goal is to “increase research on medical marijuana and CBD,” according to the statement. order.
But experts and dispensary operators say the upcoming status change could be a game-changer for the cannabis industry, clearing the way for dispensaries and growers to access traditional banking services, obtain loans and process electronic payments.
Cash only
Elad Cohen is the founder and CEO of The Flowery, a cannabis company that operates 26 stores in Florida and New York. The company employs about 600 people but still cannot process credit or debit card payments for cannabis, Cohen said.
Instead, businesses are forced to handle cash, creating a constant risk to the safety of their employees.
“You're dealing with paper, which makes you a target” for crimes, Cohen said. If a pharmacy is robbed, “most of the time they rob you for the money, not for the food.”
The cannabis reclassification could transform Cohen's cash-based operations by lowering the barriers that keep digital payment processors out of the cannabis market.
Electronically documenting income and expenses will make pharmacies appear more trustworthy and verifiable to banks and potential lenders, according to Amiyathosh Purnanandam, a finance professor at the McCombs School of Business at the University of Texas at Austin and an expert in corporate finance.
In the long term, this could make it easier for cannabis companies to obtain funding and grow.
Billions of dollars in revenue and potentially tens of thousands of American jobs are at stake.
“We don't ask for anything special except to be [treated] like a regular company, be able to raise capital like a regular company, be able to fund research like a regular company, [and] to have financial services available to us as a regular company,” Cohen said.
Risky business
But this is a difficult task for many banks. The cannabis industry is currently “not viewed in the same light as any other business,” Purnanandam said.
In 2024, the US legal cannabis market employed more than 400,000 peopleAccording to an industry research firm. The Pew Research Center has calculated the number licensed pharmacies for almost 15,000.
Despite these numbers and steady year-over-year growth, traditional banks remain hesitant to serve the cannabis industry.
According to Purnanandam, there are three main obstacles: “Legal uncertainty, the cost of collateral and concerns about suspicious activity.”
All of these barriers, he said, “will likely disappear with the reclassification of cannabis.”
According to Purnanandam, there is currently “a conflict” between cannabis laws at the state and federal level. “Banks don't want to deal with conflict.”
Companies that process non-cash payments such as debit cards face the same dilemma.
“They don’t want to face either the legal or reputational risk associated with payments that [are] not legal” under federal law, Purnanandam said.
The second obstacle is obtaining a loan. The assets that banks typically require as collateral to secure business loans are not as straightforward in the cannabis industry as they are for other businesses.
If, for example, a cannabis company fails to repay a bank loan and its cash is still considered the proceeds of a federal crime, it could complicate efforts to divest the company's assets.
“The value of that collateral, according to the banks, will go down if cannabis is not treated like any other industry, like a restaurant on a street corner,” Purnanandam said.
Tax problems
In addition to difficulty obtaining financing, cannabis companies also typically face higher taxes than other similarly sized businesses because they are not eligible for federal tax credits and deductions.
Opening up opportunities for cannabis operations under the same tax rules that apply to traditional businesses could attract “a lot of responsible capital into this space,” Cohen said.
This will “bring a wave of legitimacy to the industry that we all need,” he said.
However, not everyone supports changing the industry's tax status. A Senate bill Introduced in February by Oklahoma Republican Sen. James Lankford, it would ban tax deductions and credits for businesses selling cannabis.
High cost of ATS
In addition to legal conflicts, related issues and tax concerns, there is a fourth factor contributing to banks' reluctance to serve cannabis businesses: the high cost of complying with federal reporting rules.
Because money from cannabis sales can be considered the proceeds of crime under federal law, banks doing business with dispensaries must file multiple separate reports, alerting regulators that the transactions may not comply with both federal and state laws.
These reports are called suspicious activity reports, or SARs, and they often require banks to foot the bill to conduct due diligence to ensure that the money in question is not, in fact, contributing to a crime.
To service cannabis company accounts, banks also need to monitor their business practices and be prepared for a unique set of red flags.
For example: “How does a financial institution located several miles from a dispensary ensure that its customer does not sell to minors?” asked cannabis banking consultant Peter Su in recent essay for Rolling Stone magazine”
“The answer is intensive, ongoing monitoring. This goes far beyond business license verification,” he wrote. “This level of due diligence is unparalleled in standard commercial banking.”
Cohen said he hopes the biggest impact the cannabis reclassification will have on the industry is “not noticeable at first glance.”
“[It's] the beginning of a complete change in the stigma around cannabis,” he said.
