Banking in the cannabis industry can be difficult for a number of reasons. The first of which – cannabis’ status of illegality on a federal level – begets most of the other problems dispensaries, banks, and growers run into on a daily basis.

There is a misconception that dispensary owners can’t use a bank at all. In reality, the cannabis industry is heavily regulated at the state and federal level, and subject to complex compliance laws set by the US Treasury in 2014.

It’s a heavy burden to bear, though, and many banks do not offer their services to operators of the cannabis industry due to the risks involved. Most lenders to cannabis businesses are currently either credit unions or state operating banks.

Valley’s Model Makes Banking Easier

Valley Bank is one the largest of the estimated 750 financial servicing institutions the industry in the US and is one of the few federally chartered banks taking on cannabis business-related clients, building a specific program for them. During the years legislation on banking in cannabis has been in flux, Valley Bank has been helping the cannabis community find safe harbor for their business.

“We started the program, actually internally, performing due diligence, probably close to three years ago now,” a Valley Bank spokesperson said. “The project was undertaken by our Director of Financial Crimes and Policy, and then also our Head of Enterprise Risk Management, as well as Internal Council.”

Valley places its clients into three categories: tier one, tier two, and tier three.

Tier one is made up of clients who physically touch the plant. Think retailers and farms. Tier two includes traditional commercial real estate borrowers looking to lease a property or properties to a client in the tier one category. Tier three consists of ancillary members of the industry like hydroponics retailers and manufacturers.

Like all traditional banks, clients and potential borrowers have to have a good financial standing to secure a loan. Valley’s model is built on relationships with its clients, offering deposit-based loans that charge a reasonable rate of interest. It often lends on real estate and generally does not offer unsecured lines of credit, working capital lines, or receivable financing.

Navigating a Complicated Industry

In addition to providing loans, Valley is helping business owners navigate the complicated world of banking in the cannabis industry. By partnering with Green Check, Valley is helping multi-state operators with cross-border regime differences. Green Check’s algorithms note what state a transaction happened and consolidate them into a single banking statement.

Another way the bank is providing previously unavailable services is by cutting out transport fees that can pile up on multi-state operators.

“I think in one of the states they were operating in, on several occasions, we saved them almost $30,000 a month at transport fees by moving them over to our partner, between that and the banking fees we charge,” the official said.

With demand growing exponentially, Valley’s model could be implemented by other large banks soon. By Valley’s estimates, the industry could grow to 75 and a 100 billion dollars worth of annual sales in North America within five years.

The SAFE Banking Act

Legislation that would make the process significantly easier for cannabis businesses and banks to partner could also be on the horizon.

A bill that would allow state-legal cannabis businesses to work freely with financial institutions has passed the House of Representatives for the sixth time. The SAFE Banking Act addresses current obstacles for businesses including credit card processing and the ability to have legitimate bank accounts.

The bill heads to the senate next, facing stark opposition from Sen. Mitch McConnel who deemed the Act “a poison pill” in a larger piece of legislation.

Whatever the ultimate fate of the SAFE Banking Act, innovative programs like the one Valley Bank has instituted will continue to help the 70% of licensed cannabis business owners that called a lack of access to banking or investment capital their “top business challenge,” according to to a Whitney Economics survey.

And, when the time comes for legislation on a national level, Valley Bank will be ahead of the game with a robust structure in place for all of the cannabis industry’s banking needs.