As early as 2013, the United States Department of Justice (DOJ) decided to investigate banks and the businesses they work with, including companies believed to be at higher risk of fraud and money laundering. which was the reason for the investigation. A 2014 U.S. House of Representatives report said these businesses included arms and ammunition sales, payday loans, online gambling and other businesses, and I believe this may have put more cannabidiol (CBD) sites under and medical and retail marijuana (MMJ) inspection as well. This effort – originally announced in 2013, according to American Banker – was called Operation Choke Point.
How has Operation Choke Point affected these types of businesses?
According to my observation, Operation Choke Point allowed the government to put pressure on the financial industry to stop banking and financial services for those businesses that they needed to have in order for their companies to survive. In essence, the initiative has made it so that companies considered high-risk by the Ministry of Justice may not even have a business bank account in some cases.
Four years later, Politico announced that the US Department of Justice had officially ended Operation Choke Point, saying it was harming legitimate businesses instead of preventing fraud. But has it disappeared completely? Yes, Operation Choke Point itself is gone, but some speculate that Congress has more work to do, including a contributor to The Hill. In 2018, the CEO of the Electronic Transactions Association said that “there is nothing to stop the DOJ, CFPB, FTC and the Attorney General from filing a lawsuit that is very similar to those that arose in Operation Choke Point.”
What exactly is cannabidiol?
According to Huffington Post, CBD is one of the non-psychoactive components found in the cannabis or hemp plant. Researchers have seen the potential of CBD oil to help with anxiety, addiction, pain relief and many other problems.
In the United States, cannabis – where CBD comes from – has not lost its classification as a Schedule 1 drug, according to the DEA. In my personal experience as CEO of a company that provides financial solutions to CBD companies, the marijuana industry (both entertainment and medical) is struggling with access to banking and credit facilities. These companies can only struggle to get a business bank account and if they are able, the bank can charge huge interest rates and fees on their deposits.
Where do these financial services companies turn to?
As I have noticed, working with this industry, most CBD and medical marijuana companies have trouble finding banks to even deposit their money. When they do find a resource, the bank account often comes with additional fees to compensate for the risk. After all, the fact that it is 2019 does not mean that banks that serve retailers and marijuana producers are not potentially at risk of seeing money laundering allegations. In my experience, small credit unions have provided most of the current banking solutions for both marijuana and CBD entrepreneurs.
The sources of funding that these entrepreneurs can turn to include:
• Family members
• Cannabis-specific funds
• Hedge funds
• Angel investors
• Individuals with high net worth
• Business incubators and accelerators
During my work with a number of companies in this area, the most successful financing method I have seen is partnering with funds that focus specifically on investing in the CBD and MMJ business. These funds have a good understanding of the industry and could offer great resources and connections that these companies are unlikely to have access to.
I believe that finding banks for CBD companies will eventually become easier, especially if more research is done on the potential health benefits of using the products. If you are currently in the CBD industry and decide to venture into the world of finance, make sure you do your research to find the best suppliers. There is much more involved, as you will probably be considered a high risk trader. Make sure you review all the terms of the contract. In particular, look at interest rates, deposit terms, risk reserve requirements and whether the bank is located in the US