Weighing the pros and cons as attention on cannabis banking grows

A version of this article first appeared in the August Executive Report: Delivering what small-business banking demands. Inside, find more insight from strategists and thought leaders on relationship management trends, smarter SMB onboarding, and ideas for improving loan servicing ease.

It’s been well over two decades since cannabis began its move toward legalization, starting in just a few states for medical uses. And yet the banking industry has largely passed on widely adopted opportunities to provide credit, accounts and other services to dispensaries and related small and medium-sized businesses (SMB) connected to cannabis.

Financial institutions are limited by patchy interstate and federal legality. Many FIs, with their broad customer base in mind, wonder if this growing market for health and recreational brands aligns with their ethos. Others contemplate whether a financial institution, as an intermediary, should even make that determination, but they may calculate higher risk, nonetheless.

More banks and credit unions may be due for a fresh look at cannabis, a void to be filled by neobanks, fintech challengers or private funding alternatives. The thought leaders we talked to, many who have been tracking this market since its early days, stress projections for cannabis market growth, state ballot expansion and revitalization of frequently stalled federal regulation that could bring clarity for the U.S. banking system on this issue.

Delene Gilbert, vice president and director of cannabis banking for Oklahoma-based Prism Bank, has already seen the upside benefits of this niche SMB sector. Gilbert says she wants a space where cannabis-related businesses (CRBs) feel “informed, supported and empowered to engage with a bank that understands” their specific challenges, from capital needs to payment processing.

“Too many of these businesses have been turned away or left in limbo by traditional institutions,” Gilbert says. Prism has built its program to meet legal, rules-focused cannabis businesses “where they are, with real solutions and a compliance-forward approach,” says Gilbert. Prism Bank puts its cannabis business-focused banking solutions front and center on the bank’s website, for instance.

Banks are in a tough spot

For now, the decriminalization and legal recreational use of the drug has been a steady plod forward, going back nearly three decades. Twenty-four states have legalized recreational marijuana as of 2025, either by ballot measure or by legislative action. About 47 states have legalized cannabis in various forms for medical use.

But because it remains illegal under federal law to manufacture, distribute or dispense cannabis, the federal government still considers the proceeds of cannabis-related transactions to be generated by illegal activity. Banks must abide by both state and federal law. Therefore, depending on bank charter, how money movements cross jurisdictions and other considerations, offering select banking services to state-authorized cannabis-related businesses in violation of federal law carries important risk to banks.

“We work with hundreds of bankers and the number one reason for not banking [cannabis companies] is what most will chalk up to ‘risk’… regulatory risk, brand risk and financial risk,” says Michael Beird, consultant and founding partner at the Association for Cannabis Banking. “Bankers see the decision as binary: To either formally ‘bank’ CRBs or not.”

To Beird, this is “very narrow thinking and exposes those same institutions to the risks they thought they were avoiding.” He would rather most banks take a deeper look at these potential engagements with CRBs in part because the financial institutions should know if they have exposure to cannabis-related businesses indirectly as they transact with small businesses throughout communities.

An advantage in due diligence

Terry Mendez, CEO of Safe Harbor Financial, a financial services provider that includes a division focused on cannabis-related businesses, says fewer than 8% (680) banks are willing to work with cannabis-focused businesses by his count as of mid-2025. That includes multi-focused businesses that count even a profit center as cannabis.

Mendez agrees that bank hesitation emerges because cannabis businesses are often the focus of regulatory audits. Banks that provide products and services to cannabis businesses may feel that other business lines will be more scrupulously scoured by association, raising the risk profile for the whole enterprise, he says.

But the CRB profile, like the scrutiny of any small business, carries advantages and disadvantages.

Since these businesses bear heavier tax and regulatory burdens, they often need to rely on debt financing deals, and they are often obliged to pay higher interest on loans in general. Also, given their limited options and regulatory concerns, CRBs are typically compelled to pay higher interest and fees than comparably sized SMBs.

The rules are typically “complex” and may require banks to file “hundreds of SARs and CTRs every week,” according to Mendez.

In addition, banks must confront working with customers that are perceived as “bad,” which could affect a bank’s reputation in a smaller community, Mendez adds.

On the flip side, larger banks often will rule out CRB engagement to avoid, at least for now, even perceived risk spreading to other parts of a vast portfolio of business. While, regional and community banks would scrutinize their own risk sensitivities, they may view these local engagements with different priorities and see the market upside.

And the payoff is often worth it. “Cannabis SMBs are incredibly loyal when you show up for them. When you provide consistent service, transparency and treat them like legitimate businesses—because they are—they don’t forget that,” Prism Bank’s Gilbert says. “These clients often come with strong word-of-mouth referrals, which has been a key growth channel for us.”

Beird agrees that CRBs who need financial capabilities are often sophisticated operations because their own regulatory, tax and competitive requirements demand it. That’s an advantage for the banks who want to partner with them.

The regulatory picture from here

The Marijuana Opportunity, Reinvestment and Expungement (MORE) Act, which was reintroduced by Rep. Jerrold Nadler (D-NY) and about three dozen cosponsors late last month, marks the fourth session in a row that Nadler has put forward the proposal. It passed the House twice under Democratic control while the sponsor served as chairman of the Judiciary Committee, but it did not advance last session with Republicans in the majority. More recently, the Trump administration is actively considering a proposal to reschedule cannabis to separate its comparison to other illegal drugs.

For cannabis banking advocates, and the broader cannabis market, addressing the current classification of cannabis as a Schedule I substance under the Controlled Substances Act (CSA) is the most pressing first step to smoothing patchwork state-by-state legalization and resolving the state/federal banking gaps.

“Many people don’t realize that cannabis is still federally grouped in the same category as heroin and LSD—substances defined as having no accepted medical use and high potential for abuse,” Prism Bank’s Gilbert says. “Meanwhile, Schedule II drugs include cocaine, methamphetamine, and fentanyl, which paints a stark picture of what the current classification of cannabis really is.”

Kevin Hart, CEO of Green Check, a fintech company that aims to connect financial firms and cannabis businesses, including an emphasis on capital needs, says that the current lack of clarity around hemp, CBD and cannabis products can also be tied to packaging concerns and the recently expired Farm Bill.

“No one likes to work in such an ambiguous environment unless you are trying to bend the rules,” Hart says. “This is causing setbacks for CRBs, not the growth opportunities the industry worked so hard to develop.”

In recent months, legislation has been revived in Congress, which some pro-cannabis market advocates believe is at least a step toward legal clarity. Language calls for measures that could ease banking access. In fact, two similar bills with some differences remain the top vehicles for reform to date.

Commonly referred to as STATES 2.0, this bill would allow for regulated interstate commerce of legal cannabis, but more importantly would exempt compliant cannabis-based businesses from falling afoul of federal banking regulations. Another, the proposed Secure and Fair Enforcement Regulation (SAFER) Banking Act focuses more on providing a potential “safe harbor” for banks transacting with legal cannabis operations.

Some observers among those tracking the two bills, including Mendez, argue that STATES 2.0 “tackles the issue at a deeper structural level [than SAFER]. It not only provides safe harbor for financial institutions but also addresses the underlying conflict between federal and state cannabis laws—giving much-needed clarity to regulators, businesses and consumers alike.”

For his part, Beird says that STATES 2.0 and SAFER, if passed, would only be a “patch.”

“The STATES act is the only one that deals with interstate commerce and the issue of 280E expense tax deduction,” he says. “However, nothing is likely to move forward in a real way until [Washington] deschedules cannabis… [R]escheduling from Schedule 1 to 3 only creates new problems and hurdles.”

More banking and financing opportunities

Regardless of legislative moves, the market itself is growing.

U.S. cannabis retail sales are forecasted to nearly triple from $29 billion in 2023 to $81 billion by 2035, according to Whitney Economics. Green Check’s Hart believes that the potential interest revenue from financial institution loans to the cannabis business alone could more than double within the next decade from $1 billion to $2.4 billion.

And Hart is monitoring another corner of the cannabis financing market. Because of their regulatory limitations and other risk associations that cut off capital streams, cannabis concerns leaned on higher-interest debt financing for most of their startup and operational needs, Hart told BAI in an interview earlier this year. As much as $3 billion in debt is set to mature for major U.S. cannabis operators by the end of 2026, he says.

For banks, fintechs and others who see opportunity, refinancing deals are likely to emerge in helping cannabis businesses find some relief from a looming debt cliff.

He, too, concedes that the financial market for cannabis—from traditional banking to higher-stakes loans, real-time payments ease, bolstering small-business networks and more—will benefit from the regulatory assurances of a level playing field.

But, Hart, whose Green Check works with more than 170 mostly community banks and credit unions, says he can’t emphasize enough the bonds between financial institutions and cannabis businesses.

Both parties, he says, tend to be the “most compliant and dedicated” because neither enter into these relationships lightly.

BAI contributor Pepper Hoffman wrote this updated article. BAI Senior Editor Rachel Koning Beals contributed.