BankingTHC Addresses Cannabis Business Dilemma


When banks close the accounts of legal marijuana businesses, they frequently cite the prohibitive cost of following Department of Justice and Financial Crimes Enforcement Network guidance about complying with the Bank Secrecy Act. As a consequence, cannabis businesses have great difficulty getting and keeping bank accounts.

BankingTHC hopes to solve this problem by adapting existing software, initially designed to fight fraud in the franchising industry, to help banks understand their cannabis customers, providing them with more than just a place to keep money.

As Clark Gilder, CEO and co-founder of BankingTHC, noted, “Our fundamental point is that banking cannabis is not entirely about ‘Schedule I’ fear, and instead the problem is focused around a bank’s lack of money laundering or compliance tools. What banks need today is something that they have never had before, a new way to monitor the deposits of a cannabis business.”

Gilder brings expertise in the software industry, and Jay Postma, co-founder and Chief Compliance Officer, has extensive experience at the Federal Reserve and as a bank operations manager. Their combined approach to solving the problem for banks also means solving the problem for legal businesses.

In February 2014, in an effort to open up banking opportunities for marijuana businesses, FinCEN issued a memorandum detailing the due diligence it expects from banks regarding the laws designed to protect the U.S. financial system from money laundering and terrorist finance. Among other things, banks must file Suspicious Activity Reports, or SARs, for transactions that raise certain “red flags.”

In an abundance of caution and to protect themselves from regulatory action, banks frequently red-flag all marijuana business transactions, thus creating a crippling compliance burden for themselves. Rather than increasing banking opportunities for marijuana businesses, many believe that FinCEN’s guidance may have actually reduced them.

BankingTHC’s software is based on a patented system that has been used for the last 10 years by a company known as Zeewise, in which Gilder also has an interest. There the data collection and reporting system is used as part of a business intelligence service to detect income under-reporting on the part of franchisees to franchisors, a persistent problem.

When fully operational, BankingTHC’s software will similarly collect data from all lines of cannabis business systems, including: seed to sale systems, POS, accounting and financial systems and the bank itself to create a single integrated database covering operational, transactional, inventory, payments, revenue and accounting data.

According to Gilder, the remaining step is to build data connectors to cannabis products such as MJ Freeway, AgriSoft and BioTrackTHC so that inventory and sales data can be incorporated as well.

The goal in this instance is not to catch under-reporting franchisees, but to bring transparency to the banking relationship. The data can be used to address questions that compliance officers, bank regulators or government officials may have regarding cannabis generated bank activity. When banks know their customers, the theory is, they will feel less need to report transactions that are not suspicious.

It may also be easier to spot transactions where illegally obtained funds are commingled with legitimate proceeds. With targeted compliance efforts and reduced cost, marijuana business accounts may become a financially viable option for banks.

Businesses with bank accounts have far more than a place to keep money. A banking relationship opens up the possibility of commercial credit and lending services, something all businesses need to thrive and without which more dubious lenders may be the only option.

Lack of banking is one of the legal marijuana industry’s most troublesome problems. But the problem is less one of legal prohibition than it is the cautious administrative response to the existing guidance. While the industry waits for legal reform, a technological, data-driven solution may be the answer.

Anne Wallace is a New York lawyer who writes extensively on legal and business issues. She also teaches law and business writing at the college and professional level. Anne graduated from Fordham Law School and Wellesley College.

Related posts